ECONOMIC SPOTLIGHT - SWISS OPTIONS AND FUTURES
Preparations for the launch of a Swiss
options and futures exchange, billed as the first completely
electronic market of its kind, are at an advanced stage,
according to members of the project team.
    The Swiss Options and Financial Futures Exchange (Soffex)
is a new departure in that it will introduce an additional
range of financial instruments and electronic trading methods
to the traditionally conservative Swiss market.
    There will be no physical exchange floor and both trading
and clearing systems will be completely automated.
    The new market, due to start operating in January 1988,
follows a series of innovations by the bourses in Zurich, Basle
and Geneva aimed at preventing loss of business in the face of
keen competition from London and Frankfurt.
    These innovations included the introduction last October of
continuous trading in major shares, plans to establish a single
continuously updated Swiss share index from next month to
supplement the various indices produced by the major banks at
the close of business, and experiments in electronic trading.
    Banks themselves last year took the initiative of launching
covered warrants on the shares of other Swiss companies.
    "If Switzerland wants to maintain and expand its
international prominence in portfolio management, our bankers
and fund managers must have the same modern instruments at
their disposal as their competitors," says Soffex president
Rudolf Mueller, a director of Union Bank of Switzerland.
    The computer terminals on which business will be conducted
will be confined to Switzerland. It is still unclear how many
Swiss-based institutions will seek membership of the exchange.
    Formal applications are not due until next month but a
preliminary survey completed by the Soffex project team this
week showed strong interest in membership.
    "The response from both Swiss and foreign institutions all
over the country has been very encouraging," says Philippe
Bollag of the project team.
    Hans Kaufmann, who follows Swiss equities for Bank Julius
Baer, says a regulated traded options exchange should boost
foreign interest in Swiss shares and possibly increase bourse
turnover generally.
    The possibility of protecting portfolios by hedging should
attract Swiss institutional investors, Kaufmann added.
    Soffex is a private company set up by the five major Swiss
banks and the bourses of Zurich, Geneva and Basle.
    Trading will initially be limited to stock options on 10 to
15 leading Swiss bearer shares. An options contract on the new
Swiss share index should follow within six months but trading
in financial futures will be delayed until an unspecified
future date. Options on foreign shares may also be added later.
    Participants will be either brokers or dealers, operating
in the market through computer terminals in their own offices.
Trading must be conducted exclusively through the exchange.
    Exchange membership is open to banks, traders and brokerage
firms with an office in Switzerland, while Clearing Members
must be recognised as banks under Swiss law.
    The trading system, based on Digital Equipment Corp
software and hardware, provides for the display of best bid and
offer prices, matches orders electronically, allows anonymous
negotiation of block orders and maintains members' order books.
    An "interest" facility, aimed at helping participants to
gauge the market mood, shows the number of users watching a
particular instrument at any time. Most of the electronic
clearing functions will be carried out overnight.
    Each contract will cover only five shares instead of the
100 shares normally traded on existing options and futures
markets in the United States, London, Amsterdam and Stockholm.
    This reflects the fact that Swiss shares often cost
thousands of francs. Bearer shares in F. Hoffman-La Roche und
Co AG <HOFZ.Z>, likely to be on the Soffex opening list, were
quoted this week at 209,000 francs each.
    Contracts will initally be offered for the three end-months
following the trading date plus the subsequent January, April,
July or October end-months. Longer maturities may be added in
future if market liquidity permits.
    Detailed provisions have still to be worked out in areas
such as margin requirements, position limits, the supervisory
and regulatory functions of the exchange and brokerage fees.
    Banks polled by Reuters in a random survey were
enthusiastic about Soffex but reticent about the level of their
own involvement and about the exchange's prospects for success.
    "We're moving into completely new surroundings and it will
require a change in psychology," said a securities dealer at a
major Swiss bank. "We in Switzerland are not used to sitting all
day at a screen where nobody shouts at you."
    Moving into traded options will also require considerable
investment in equipment and staff by participants. Completely
new dealing and back-office skills will have to be acquired and
some banks are already sending staff abroad for training.
 REUTER
