When sustainability chimes with stability

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By Chris Landis – Division CEO, SIX Swiss Exchange

 

 

 

For any infrastructure provider, it is absolutely critical to ensure the stability of its services. From this perspective, any change equals a risk of creating instability. However, change is inevitable and has to be faced or, if possible, anticipated. Developments in the area of regulation and technology as well as competitive pressure require a constant development of systems and services.

An example from the technological perspective is digitalisation, which will no doubt change the way we do things, possibly also what we do. How exactly and how fast this will happen is difficult to predict. But the digital revolution is a reality and the upcoming challenges have to be met. These challenges could take many forms. Maybe new services will be created based on the data generated by the increasing interconnection between humans and machines or objects. Maybe they challenge existing business models
or even entire industries.

Digitalisation raises such questions for operators of the financial market infrastructure, including SIX. For example, bank customers now use more automated processes and mobile banking. This has created new demands within the financial market infrastructure. Which requirements will it have to meet? And from a governance perspective: what rules determine how data is used? What conditions does the State need to put in place to ensure that everyone benefits from digitalisation while upholding consumer or investor protection?

Finding the right balance

In the case of a stock exchange, the challenge is and always has been, to achieve a balance between stability and trustworthiness and serving the changing needs of its customers and the society at large. In this respect, SIX has a responsibility – not only at a corporate level, but also, even more importantly, on a societal level. Because some of the infrastructure it provides is systemically important: it is fundamental to the competitiveness and performance of the Swiss financial centre and therefore to the economy. To reflect this responsibility SIX has made the stability of the financial sector the first and most important of its corporate responsibility principles.

“Events, such as a prolonged power cut, floods, acts of sabotage or pandemics, could lead to chaos on the financial markets, destabilising financial systems and thereby the economy”

The availability and reliability of its infrastructure are the foundation of the stability of any financial centre. Every day, millions of financial transactions, a high volume of data and monetary amounts in the billions pass through the systems of a financial infrastructure service provider such as SIX. It is therefore crucial that this load can be handled by its systems reliably and at any time.

In recent times, the financial infrastructure in Switzerland has passed several such ‘stress tests’, the biggest one being the decision taken by the Swiss National Bank to abandon the euro exchange-rate floor on 15 January 2015. On that particular day, SIX had to handle six times the normal trading volume – and did so without any problems.

System availability: A top priority

Ensuring the availability, stability and security of the systems – especially in crisis situations – is at the core of financial services providers. Events, such as a prolonged power cut, floods, acts of sabotage or pandemics, could lead to chaos on the financial markets, destabilising financial systems and thereby the economy. Any infrastructure service provider for a financial centre should therefore be aware of its responsibility and act and plan accordingly. Redundancy, in terms of systems and connectivity, staff recovery and succession planning, and robust, rehearsed emergency procedures, form the basis of our ambition to operate responsibly. Infrastructures that SIX operates worldwide can be deployed all year round, 24/7 and the average availability of all SIX services is 99.95 per cent.

Forward-looking mindset

Corporate governance should be geared towards sustainability and longevity. This implies a mindset that is not only focussed on the present but also forward-looking. Financial market infrastructures need to be developed on an ongoing basis to meet future requirements and challenges. SIX aims to ensure this through a well-balanced ownership and through active participation in all relevant organisations.

Economic success, social responsibility and environmentally conscious actions should complement one another. Through the creation of appropriate framework conditions at national and international levels, SIX not only supports Switzerland’s sustainable development as a financial centre, but also contributes to the stability of the overall economy.

A greener future

Infrastructure is not the only area where a stock exchange can demonstrate its commitment to corporate responsibility: it can also relate to the financial instruments traded on it. A current example of a project that SIX is working on relates to the fixed income segment and the visibility of green bonds.

Green bonds are conventional fixed income instruments, created to (re)finance projects that have positive environmental and/or climate benefits. Several approaches can be used to define what a green bond is, using different data and parameters. One prevalent way is to apply the criteria of the Climate Bonds Initiative (CBI). The CBI is an international, investor-focussed not-for-profit organisation supported by a large network within the financial industry. Based on its data of labelled green bonds, these specific instruments can be identified.

Figures on the development in recent years show an increasing interest for sustainable investments. In particular, the issuance of green bonds has increased from $11billion in 2013 to $42billion in 2015 and estimates of CBI expect up to $130billion to be issued in green bonds in 2017. Of course, the success of green bonds also depends on how actively they are traded. A clear identification of green bonds will support investors and asset managers in their decision process.

On the route to introduce green bonds, SIX took a first step in November 2016 by organising an event in cooperation with the International Capital Markets Association (ICMA) and the Swiss Financial Analysts Association (SFAA). This event was very well received by investors as well as underwriters, encouraging SIX to continue on this path.

If green bonds can be added to the offering of SIX, it would support the growth of sustainable finance and therefore be a perfect fit with its corporate responsibility framework. Besides ensuring stability and being a responsible employer, the company concentrates its activities on strengthening social cohesion and the careful handling of natural resources – true to its principle ‘enabling a sustainable future’.

 

About the Author:

Chris Landis has been Division CEO of SIX Swiss Exchange since 12 November 2015. He had previously managed the business area on an interim basis since May 2015. Chris Landis has been at SIX Swiss Exchange since 1992. He was Deputy Director of Information Technology from 1999, with a major focus on developmental and external IT projects. He was appointed to the Management Committee of Swiss Exchange as CIO in 2003. He has been responsible for Operations since 2010, in the capacity of Deputy Division CEO since 2012. After graduating with a Type B Matura in Zurich in 1978, Chris Landis continued his studies in the fields of human medicine, information technology, and economics.