“There will be an explosion in digital assets”, says SIX CEO Jos Dijsselhof
Why SIX builds a blockchain based exchange
The operator of the Swiss Stock Exchange, the SIX Group, will launch its new blockchain-based exchange, the SIX Digital Exchange (SDX), in the second half of this year. What is the reason for this step? What is the expectation of SIX? How will the financial and blockchain industry benefit? Interview with CEO Jos Dijsselhof.
How is fintech changing the face of global finance?
Technology is increasing transparency and comparability between all kinds of services, including financial ones. Technology also facilitates unbundling of services you would previously have consumed as a bundle from a single provider. Technology allows direct connectivity and thus risks disintermediating hitherto middlemen. For example, loans can be directly requested from investors rather than going through an intermediary bank. Generally speaking, technology increases competition and thus puts downward pressure on traditional financial services.
What is the potential of blockchain?
We are not very bullish on permissionless distributed ledgers (DLT). But we are very open to the possibility of adoption at scale of permissioned DLTs. We do believe that there are specific use cases for which permissioned DLTs will be best suited and that they will co-exist with central ledgers. Even where central ledgers continue to be used, we believe that participants’ IT systems communicate directly with these central ledgers, so that all participants are always synchronized and that there is no reconciliation needed.
Observers and experts emphasize the disruptive potential of the new technologies. How do you judge that?
New technologies allow to better fulfill clients’ needs. Technology also increases the speed of innovation by reducing the time-to-market significantly. All this puts a considerable amount of pressure on legacy financial institutions whose IT systems have grown over the past 50 years. It is to be seen whether these IT systems (even once upgraded) allow for the necessary agility.
In which fields will we see the biggest changes?
Retail banking is already seeing significant changes. Just look at the offerings of all the challenger banks. The open question obviously remains whether people would be willing to trust these challenger banks with all their money. We also see immense changes in the investment space. We believe that there will be an explosion in digital assets. This will not only increase the investment universe, but also affect the type of data that amounts to financial information.
What does this mean for the financial industry?
It means that we live in exciting times. There will be lots of challenges, but also lots of opportunities
Is the industry prepared to these challenges?
The Swiss financial center is well prepared. Switzerland as a country is well prepared. We have the necessary experience, we have highly educated people working here, we have the crypto valley, just to mention one place where innovation is happening.
How is SIX preparing for the future?
We have started developing ‘Pictures of the Future’ last year in which we turn our attention to how the world might look like in 10 years. This allows us to discuss the possible implications for the Swiss financial center and to understand how SIX can best support the Swiss financial center’s continued success. SIX is already undertaking measures with a long-term horizon: SDX, Corporate API; Swiss Cloud; SOC.
You are building a new blockchain-based exchange, who will benefit and how?
We are building a fully integrated trading, settlement and custody infrastructure for digital assets — bankable and non-bankable assets. Non-bankable assets are assets that are hardly tradable in today’s environment and therefore operate in a less liquid market. We will assess the offering in close collaboration with the market participants and will communicate that accordingly.
Everybody will benefit from it. For our existing clients there is a real need to establish transparency and accountability in the world of crypto/digital assets: SIX is regulated as a provider of Financial market Infrastructure by FINMA. SIX Digital Exchange is conceived to establish the same levels of security, transparency, accountability and oversight that our clients enjoy today. We want to create stability, reliability and trust in this space and offer new services for our clients that address this growing need. In addition, these services will open up new markets and broad our reach to new customers.
Through the convergence of trading, settlement and booking on an eWallet into a single step at thousands of transactions per second, we expect that SDX will substantially reduce risk and collateral requirements, and increase liquidity for market participants. Just as an example: today Stock exchange transactions in securities listed or authorized for trading on our Swiss Stock Exchange are as a general rule settled on the second exchange day (T+2) following execution. In the future this time will be reduced to T+1 second — meaning that it will only take a second for trading and settlement.
Why is the SIX Digital Exchange important for Switzerland?
As mentioned, there is a real need for transparency and accountability in the world of crypto/digital assets. At the same time there is also increasing pressure and demand from the market, for traditional companies to start dealing with and investing in crypto assets as well as to establish clear accountability. Clients are asking for a solution like the one we are creating. In addition, distributed ledger technologies have now reached a level of maturity and capability that make them viable for production strength mission-critical services
We want to build a bridge between the traditional financial services and digital communities. Ultimately, we want to make the essential functions of a regulated exchange accessible to them: Provide a secure framework for financing entrepreneurial projects and investment decisions.
This space represents huge opportunities for SIX and the Swiss Financial Center: A first mover advantage here promises to leverage the brand Switzerland and SIX to establish greater visibility, credibility and attractiveness for both. Switzerland’s financial centre and SIX will be placed firmly at the heart of the digital industry’s future.
What are your biggest competitors?
We were definitely the first to announce this. And we are confident that we will be the first to launch a digital stock exchange. Some of our competitors run only the exchange. Some only take care of the settlement in the end. But the remaining processes are still separate. As far as I know nobody out there is building a completely new exchange on the blockchain with fully integrated trading, settlement and custody of digital assets like us.
How is Switzerland generally positioned to shape the blockchain and fintech future?
Switzerland is a small country. There’s a lot of influx from external countries. Some 25 percent of the workforce is foreign, so there’s an international community. And people are very well educated. There are also a lot of strong technicians and people willing to try new technology. Zug is being seen as the crypto value of the world, many crypto initiatives originate from there. Generally, Switzerland is very creative in innovation. Furthermore, Switzerland continues to be one of the world’s most important and strongest financial centers with a very strong financial industry. At SIX, we’re very keen to push innovation to invest in new services, working with new business models and at the end drive innovation and ensure the competitiveness and strength of the Swiss financial center.