COSI - Collateral Secured Instruments

A service of SIX Swiss Exchange Ltd in collaboration with SIX SIS Ltd and Eurex Zurich Ltd (Collateralisation and SecLend Market)

Certificates are bearer debt instruments (claims). The investor who purchases a certificate assumes a default risk that varies according to the creditworthiness of the issuer. The insolvency of the issuer may result in a total loss for the investor. In order to minimize this risk, SIX Swiss Exchange is offering a service for the collateralization of certificates in collaboration with SIX SIS and Eurex Zurich Ltd. The collateralization is based on the "Framework Agreement for Collateral Secured Instruments (in German)[pdf]", which the issuer and collateral provider conclude with SIX Swiss Exchange and SIX SIS. The administration of the securities used as collateral is undertaken via the established technical infrastructure of SIX SIS and Eurex Zurich Ltd (Collateralisation and SecLend Market).

Based on the Framework Agreement, the collateral provider undertakes to grant SIX Swiss Exchange a right of lien on selected securities (book entry securities, securities embodied in a certificate, value rights, or cash). The COSI and the collateral itself are valued on each banking day. The collateral provider is obliged to adjust the level of the collateralization in the event of any changes in value. Investors do not themselves have any surety right to the collateral. However, the collateralization works in their favor insofar as the collateral is liquidated upon the occurrence of certain events as defined in the Framework Agreement (liquidation events) and the net proceeds of the liquidation of the collateral are then distributed proportionately among the investors. The market risks associated with a certificate and its collateral (price fluctuations due to changes in value of the underlying) are not affected by the collateralization process and remain wholly with the investor. Further information on this service for investors can be found in the Information Sheet of SIX Swiss Exchange Ltd[pdf].

The service offered by SIX Swiss Exchange, SIX SIS, and Eurex Zurich Ltd (Collateralisation and SecLend Market) can be illustrated as follows:

The application for collateralization is submitted as part of the request for a COSI to be admitted for trading via Internet-Based Terms ("IBT"). The issuer undertakes to provide ongoing bid and offer prices for the COSI in the secondary market (market making). The issuer, collateral provider, and market maker may be legally separate companies. Where the collateralization of certificates is concerned, the collateral provider must in all cases fulfill the following special conditions:

• Legally headquartered in Switzerland;
• Authorized as a domestic bank or domestic securities dealer;
• Participant in SIX SIS; and
• Participant in the Collateralization Market of Eurex Zurich Ltd.

The regulations of SIX Swiss Exchange, SIX SIS, and Eurex Zurich Ltd that apply to the collateralization of certificates are listed under the Conditions for Issuers.