Swiss Central Securities Depository: SIX SIS, SDX, and the Future of Securities Safekeeping

The central securities depository sits at the heart of any modern securities market, providing the definitive record of who owns what and ensuring that ownership transfers are executed with finality and integrity. In Switzerland, the CSD landscape is undergoing a structural transformation as the traditional infrastructure operated by SIX SIS converges with the DLT-based settlement system operated by SIX Digital Exchange (SDX). Understanding this evolving landscape is essential for any participant in Swiss capital markets.

SIX SIS: The Traditional CSD

SIX SIS AG operates as Switzerland’s international central securities depository, providing custody, settlement, and asset servicing for a broad range of domestic and international securities. Licensed by FINMA under the Financial Market Infrastructure Act (FMIA), SIX SIS is recognised as a systemically important financial market infrastructure and is subject to oversight by both FINMA and the Swiss National Bank.

SIX SIS settles transactions in Swiss franc securities through a delivery-versus-payment mechanism linked to the Swiss Interbank Clearing (SIC) system operated by the SNB. International securities are settled through links with other CSDs, including Euroclear, Clearstream, and various national depositories. These links enable Swiss investors to hold and settle foreign securities through their SIX SIS accounts, and conversely enable foreign investors to access Swiss securities.

The custody function of SIX SIS encompasses the safekeeping of securities in both physical (certificated) and dematerialised forms. Switzerland has progressively moved toward the dematerialisation of securities, with uncertificated securities (Wertrechte) and intermediated securities (Bucheffekten) under the Federal Intermediated Securities Act (FISA) now representing the dominant form of securities holding. Physical certificates, while still legally valid, are increasingly rare in practice.

Asset servicing provided by SIX SIS includes the processing of corporate actions — dividends, interest payments, capital increases, mergers, and other events that affect security holders. The depository collects the relevant entitlements from issuers and distributes them to participants’ accounts, which in turn distribute them to their underlying clients. This cascading model of asset servicing, while functional, introduces operational complexity and potential for delay or error at each level of the holding chain.

SDX as CSD: The DLT-Native Alternative

SDX’s CSD function represents a fundamentally different approach to securities custody. Rather than maintaining records in a centralised database, SDX uses a distributed ledger as the authoritative record of securities ownership. This architectural choice has implications for the finality of transfers, the transparency of holdings, and the efficiency of corporate action processing.

Under the DLT Act, securities registered on a qualifying DLT ledger — known as DLT securities or Registerwertrechte — possess the same legal status as traditional intermediated securities. The transfer of a DLT security on the ledger is legally final, conferring on the transferee the same rights and protections as a transfer through the conventional CSD system. This legal equivalence is crucial for institutional adoption, as it ensures that DLT-based custody does not create any diminution of legal certainty for investors.

The transparency characteristics of the SDX ledger differ markedly from the opaque, tiered holding structures of traditional CSDs. In the conventional model, the CSD records holdings at the participant level, and each participant maintains its own sub-records for its underlying clients. The beneficial owner of a security may be several tiers removed from the CSD record, creating challenges for corporate governance, tax compliance, and regulatory reporting. On the SDX ledger, the granularity of ownership records is configurable, potentially enabling direct identification of beneficial owners while maintaining appropriate confidentiality protections.

Legal Framework for CSD Operations

The regulatory framework for CSDs in Switzerland is established by the FMIA and its implementing ordinances, supplemented by FINMA circulars and guidance. The FMIA requires CSDs to satisfy organisational, capital, and operational requirements designed to ensure the safety and efficiency of securities settlement.

Key regulatory requirements include the segregation of participant assets from the CSD’s own assets; the maintenance of robust business continuity and disaster recovery capabilities; the implementation of effective risk management frameworks; and the provision of fair, open, and non-discriminatory access to CSD services.

The DLT Act introduced specific provisions for DLT trading facilities, which can combine exchange and CSD functions within a single entity. This regulatory innovation enables platforms like SDX to operate an integrated trading and settlement infrastructure without the need for separate licences for each function. The DLT trading facility licence is available for platforms that meet defined criteria, including limitations on the types of DLT securities that can be admitted and the categories of participants that can access the facility.

The relationship between the CSD regulatory framework and the Intermediated Securities Act (FISA) is also important. FISA establishes the legal framework for the holding and transfer of intermediated securities through the traditional tiered custody chain. The DLT Act creates an alternative framework for DLT securities that bypasses the intermediated securities model, enabling direct registration and transfer on the ledger. The coexistence of these two regimes — intermediated securities under FISA and DLT securities under the Code of Obligations — means that Switzerland now has two parallel legal frameworks for securities custody, each with its own rules regarding transfer, pledge, and enforcement.

Interoperability and the Bridge Between Systems

The existence of two parallel CSD systems — traditional and DLT-based — creates an imperative for interoperability. Securities issued in the traditional system must be accessible to participants in the DLT system, and vice versa. Without effective interoperability, the securities market risks fragmentation into separate pools of liquidity, each with its own infrastructure and participant base.

SIX Group’s ownership of both SIX SIS and SDX provides a structural advantage in developing interoperability solutions. The group has invested in bridge mechanisms that enable the movement of securities between the traditional and DLT-based environments. These mechanisms typically involve the immobilisation of a security in one system and the issuance of a corresponding representation in the other, with processes to ensure consistency between the two records.

The technical challenges of interoperability are significant. The traditional CSD operates on batch processing cycles with defined settlement windows, while the DLT-based CSD processes transactions in near-real-time with atomic finality. Reconciling these different temporal models requires careful design to avoid introducing settlement risk at the point of transition between the two systems.

The legal challenges are equally complex. A security that exists simultaneously in two systems — as an intermediated security in SIX SIS and as a DLT security on SDX — raises questions about which record is authoritative, how conflicts between the two records are resolved, and how the rights of holders in each system are protected. Swiss legal practitioners are developing frameworks to address these issues, but the case law and regulatory guidance in this area remain nascent.

International Connectivity

Switzerland’s role as an international financial centre requires its CSD infrastructure to connect seamlessly with foreign depositories. SIX SIS maintains an extensive network of links with international CSDs, enabling cross-border settlement of both Swiss and foreign securities.

The international connectivity of SDX is at an earlier stage of development. Cross-border settlement of DLT securities raises novel questions about legal finality, choice of law, and regulatory recognition. When a Swiss DLT security is transferred on the SDX ledger to a participant located in another jurisdiction, the legal effect of that transfer depends on both Swiss law (governing the ledger) and the law of the participant’s jurisdiction (governing the recognition of foreign DLT transfers).

International initiatives to harmonise the legal and regulatory treatment of DLT securities are underway but remain incomplete. The European Union’s DLT Pilot Regime provides a framework for DLT-based market infrastructure within the EU, but does not establish reciprocal arrangements with non-EU jurisdictions like Switzerland. Bilateral agreements between Switzerland and individual EU member states or the EU itself will be necessary to enable seamless cross-border settlement of DLT securities.

Systemic Risk Considerations

As critical nodes in the financial system, CSDs are subject to heightened scrutiny from systemic risk perspectives. The concentration of securities ownership records in a single entity — whether traditional or DLT-based — creates a single point of failure whose disruption could have cascading consequences throughout the financial system.

The distributed nature of DLT technology offers potential advantages for operational resilience, as the ledger is maintained across multiple nodes rather than in a single centralised database. However, the degree of distribution in institutional DLT platforms like SDX is typically more limited than in public blockchain networks, reflecting the need for performance, confidentiality, and regulatory compliance. The resilience benefits of distribution must be weighed against the operational complexity of maintaining consensus across multiple nodes and the expanded attack surface that a distributed architecture presents.

The Swiss National Bank’s oversight of CSD infrastructure encompasses both the traditional and DLT-based systems. The SNB’s expectations regarding the operational resilience, financial resources, and governance of CSDs apply equally to SIX SIS and SDX, ensuring that the transition from traditional to DLT-based infrastructure does not compromise systemic stability.

Outlook

The trajectory of Switzerland’s CSD landscape points toward a gradual convergence of traditional and DLT-based infrastructure. Rather than a sudden replacement of the existing system, the transition is likely to proceed through a period of coexistence in which both systems operate in parallel, connected by interoperability mechanisms that enable securities and cash to flow between the two environments.

The pace of this transition will be determined by several factors: the growth of the DLT securities market, the development of robust interoperability solutions, the evolution of international standards and regulatory frameworks, and the willingness of market participants to adopt new infrastructure. Switzerland’s position as a first mover in the regulation and development of DLT-based market infrastructure provides a foundation for this transition, but the path from foundation to mainstream adoption will require sustained commitment from all stakeholders.

For additional context, see our coverage of SDX clearing and settlement and the Helvetia Project.

Donovan Vanderbilt is a contributing editor at ZUG DLT, covering distributed ledger technology law, regulation, and institutional adoption from Zurich. The Vanderbilt Portfolio AG provides research and analysis on Swiss digital asset infrastructure.