Exchange Traded Products & Indexing Guide Switzerland 2013

Focus
cally using an internet tool or standard trading interface. "The
Swiss market is very similar to the rest of Europe in terms of
the share of OTC vs. exchange transactions. The majority of
the local investors there are very sophisticated and often use
the exchange with the best liquidity position, or trade directly
via OTC. But recently, the order flow has shifted and is increasingly
in the direction of the exchange, primarily due to the
growing liquidity there", reported Dr. Andreas Zingg, Head
of German-Swiss sales at BlackRock. As a result of the considerably
improved liquidity, in daily practice, it can often occur
that large individual orders in benchmark ETFs (for example,
on the MSCI Emerging Markets Index) of CHF 250m or more
are sent to SIX to be carried out "on exchange." "At the same
time, BlackRock has been able to make carrying out ETPs in
Europe much more efficient, after intensive discussions with
Euroclear", added Zingg.
"Cross-border processing of ETFs
will become even easier in future."
Processing becomes more unified
In contrast to the USA, where there is a central depository, in
Europe, there are multiple regional security depositories, all
at the national level. Cross-border transactions, for example
ETFs domiciled in Ireland that are traded on the LSE in order
to then send them to a Swiss depository bank currently often
result in high costs. By using a single European settlement
location at the Euroclear Bank, a new international ETF product
structure will improve market liquidity, simplify cross-border
processing, and thereby ultimately considerably lower transaction
costs for the investor. That would be a further accolade
for exchange traded funds.
11 ExchangE TradEd ProducTs & IndExIng guIdE Switzerland 2013
SuMMary: EXChangE tradEd fundS
what is an Etf?
ETF is a synonym for index funds, and in English, referred to
as an exchange traded fund. The term describes highly liquid
investment funds that are listed on exchanges and that can
be traded on any trading day. From a legal point of view, they
are publicly authorized funds whose goal it is to track the
price and performance of an index that they are based on. an
investor gains a share of an ETF through a single transaction
that very closely tracks a specific market (for example, the
swiss Market Index).
how is trade in them carried out?
a prerequisite for investing in ETFs is a securities account.
Trade in ETFs can be done either on an exchange or over-thecounter
(oTc). larger orders, of chF 10m for example, are
often done oTc in switzerland. The high liquidity helps ETFs in
reducing and also in building up intraday positions. There is no
termination deadline or minimum holding period.
what advantages and disadvantages do Etfs have?
The main difference and biggest advantage of an ETF in comparison
to a classical investment fund or structured financial
product is that ETFs have the same advantages (e.g. listing on
an officially regulated exchange), but at the same time, avoid
potential disadvantages (issuer risk, lack of transparency).
In addition, ETFs are very competitive with regard to fees.
The ongoing costs for investors are the lowest with ETFs in
comparison to all other financial investments, and particularly
compared to classical investment funds. The only disadvantage
is that an investor owning ETFs never does better than
the reference market that the ETF tracks. If the swiss sMI
stock Index for example climbs 10%, the ETF also gains 10%
on the sMI in value, and vice versa, if the market is weak.
how safe are Etfs?
all ETFs that can be traded in switzerland are — from a legal
point of view — mutual investment funds (in accordance
with the swiss Kag law), the goal of which is to track the
performance of the index that they are based on. The capital
invested is thus designated as "separated" and is not subject
to issuer risk.