Swiss DLT Act 2021: DLT Trading Facilities and Ledger-Based Securities

Overview: The DLT Act and Its Significance

The Swiss Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology — universally known as the DLT Act — entered into force on 1 August 2021. The Act amended nine existing federal laws to accommodate DLT-based financial instruments and created two landmark innovations that no other jurisdiction had implemented:

1. Ledger-based securities (Registerwertrechte): A new category of Swiss law security that exists solely as an entry on a DLT register, with all the legal characteristics of a traditional uncertificated security but without any requirement for a CSD or paper instrument
2. DLT Trading Facility license: A new FINMA license category for DLT-based financial market infrastructure that can simultaneously act as a trading venue, CCP, and CSD — functions that traditional regulation mandates be separated across multiple licensed entities

Together, these innovations create a complete legal infrastructure for tokenized securities: the Registerwertrecht provides the underlying legal asset, and the DLT Trading Facility provides the regulated infrastructure for its trading and settlement.

Ledger-Based Securities: Registerwertrechte

The Registerwertrecht is defined in the revised Swiss Code of Obligations (Article 973d ff.) as a right that is registered in a securities ledger and can only be asserted and transferred through that ledger. Key characteristics:

Legal status: A Registerwertrecht has the same legal force as a traditional certificated security or uncertificated security (Wertrecht) under Swiss law. The holder’s rights are protected in the same way as conventional security rights — including in insolvency proceedings against the issuer or a DLT Trading Facility operator.

Issuance mechanics: The issuer creates the Registerwertrecht by registering it in a compliant securities ledger — a DLT system that meets the requirements of the Code of Obligations. The registration requirements include: specification of the rights represented, identification of the initial holder, technical design providing integrity and access control, and mechanisms for the ledger administrator to maintain and modify the register.

Transfer mechanism: Transfer of a Registerwertrecht is effective under Swiss law when the ledger entry is updated to reflect the new holder — analogous to the transfer of book-entry securities through a CSD, but without the CSD intermediary. Smart contract-based transfer (as in ERC-3643 or similar permissioned token standards) satisfies this requirement where the contract enforces the ledger’s integrity.

No CSD required: Unlike traditional Swiss securities, a Registerwertrecht does not need to be deposited with SIX SIS (Switzerland’s national CSD) or any other CSD. The DLT ledger itself serves the CSD function. This is the technical and legal breakthrough: tokenized securities can be issued and transferred on-chain without involving the traditional central depository infrastructure.

DLT Trading Facility License: The World’s First

The DLT Trading Facility (DLTF) is a new category of financial market infrastructure authorization under the revised Swiss Financial Market Infrastructure Act (FMIA, Article 73a ff.). Unlike a conventional stock exchange (which trades securities), a CCP (which clears), or a CSD (which settles), a DLTF can perform all three functions simultaneously on a single DLT platform.

FINMA authorization requirements for a DLTF include:

• Legal form: the DLTF operator must be a company organized under Swiss law
• Fit and proper management, beneficial owners, and qualified shareholders
• Technical infrastructure: DLT system meeting FINMA’s operational resilience requirements, with documented governance for participant admission and exclusion
• Financial resources: adequate capital and liquidity for the risk profile of the activity
• Risk management: clearing and settlement risk management framework adapted to DLT settlement mechanics
• Legal certainty: rules demonstrating finality of DLT-based settlement under Swiss law
• Cyber resilience: key management, network security, and business continuity meeting FINMA’s technical expectations

SIX Digital Exchange (SDX) received the first DLTF license in September 2021. SDX operates on R3 Corda infrastructure and provides institutional participants with the ability to issue, trade, and settle digital bonds and equities with atomic DvP settlement — eliminating the T+2 settlement risk inherent in conventional securities markets.

Practical Uptake: SDX Issuances

Since receiving its DLTF license, SDX has executed a series of landmark digital securities issuances:

UBS and Credit Suisse (now UBS) digital bonds: Multiple CHF-denominated digital bonds settled atomically on SDX, with institutional investor participation through SDX’s permissioned participant network. These transactions demonstrated that the DLTF/Registerwertrecht framework is operationally viable for institutional issuances above CHF 100 million.

Swiss Confederation (Government) digital bond: SDX facilitated a digital bond issuance by the Swiss federal government — among the first sovereign debt issuances on DLT infrastructure. The issuance demonstrated that the Swiss legal framework has sufficient certainty for government entities to issue DLT securities.

Basel Stadt digital bond: The Canton of Basel-Stadt issued a CHF 105 million digital bond on SDX in 2022 — the world’s largest cantonal digital bond at issuance. The bond was settled atomically through SDX’s DLT infrastructure and SIX SIS simultaneously, demonstrating cross-infrastructure interoperability.

Compliance Implications: Structuring Swiss Tokenized Issuances

For compliance officers and legal counsel structuring a tokenized security issuance under Swiss law:

Step 1 — Asset classification: Determine whether the instrument is a Registerwertrecht (a DLT security under Swiss law) or a conventional Swiss security to be represented on a DLT. The former offers the cleanest legal certainty but requires a compliant securities ledger. The latter can use DLT for representation but requires CSD involvement for legal transfer effectiveness.

Step 2 — Ledger selection: Select a compliant securities ledger — either SDX (for institutional issuances with DLTF infrastructure) or a custom DLT implementation that meets the Code of Obligations requirements. Custom implementations require legal opinion confirming the ledger’s compliance with CO Article 973d.

Step 3 — Token standard: Select a token standard that implements the access controls and transfer restrictions required by Swiss securities law and the instrument’s terms. ERC-3643 (the T-REX standard) is the most commonly adopted standard for Swiss-issued security tokens, as it implements on-chain whitelist verification compatible with Swiss KYC requirements.

Step 4 — FINMA assessment: Issuances by non-licensed entities may require a FINMA no-action letter or the engagement of a FINMA-licensed entity as issuing agent. Token issuances that constitute public offers under the Financial Services Act (FinSA) require a prospectus or applicable prospectus exemption.

Step 5 — SRO or FINMA-licensed intermediaries: Distribution of Swiss digital securities typically involves FINMA-licensed securities firms or SRO-affiliated intermediaries acting as placing agents. The investor eligibility criteria (professional/institutional vs. retail) determine which regulatory pathway applies.

Key Contacts and References

• FINMA — DLT Trading Facility
• SIX Digital Exchange — SDX
• Swiss Code of Obligations, Article 973d
• Switzerland Jurisdiction Profile
• FINMA Regulator Profile
• Taurus Group — Swiss DLT Infrastructure