Business model Business

Annual Report 2016

Annual Report 2016 Business model Anniversary 20 years of Swiss

Focus: Value Chain – A business model with a future a piece of Swiss Pages 23–34 financial history

Further information at six-group.com/fintech

Growth of operating income 2016 Collaborations

in CHF m in CHF m For a strong 1,810.9 1,838.6 financial center SIX works together with its partners to drive the development of innovations. % New Cyber infrastructures security +1.5

2015 2016

Employees

Forward-looking technologies 4,020 employees from 53 countries Further information at six-group.com/fintech Business model with a future

SIX Group

8 Report on the business year SIX remains firmly on track in 2016 in an increasingly challenging market environ- ment. The diversified business model and current strategy are paying off.

Business areas Focus

12 Swiss Exchange 23 Business model Following a record year in 2015, trading with a future turnover returned to normal levels in 2016. Five IPOs reflected the high quality and forward-looking approach of the Organization Swiss stock exchange. and competencies

14 Exchange Regulation 36 Corporate responsibility Trading in 2016 was conducted in 40 Risk management accordance with the rules, and without 42 Management structure

any serious incidents. Bonds and and shareholders a with future ­derivatives were issued at a brisk pace. 43 Internal organization 16 Securities Services and competency rules In the highly competitive environment 46 Board of Directors for post-trade services, Securities Services 48 Group Executive Board made a very positive contribution to the Group’s overall result. Annual financial 18 Financial Information statement Thanks to continued transformation and a focused growth strategy, Financial 52 Consolidated balance ­Information was able to raise its operating sheet and income income yet again. statement

20 Payment Services Cashless payments are an important area of activity for SIX. The business area contributed the most to EBIT and still has further growth potential. Business model 6 SIX Annual Report 2016

Dr. Romeo Lacher (l.) and Dr. Urs Rüegsegger Foreword 7

Dear readers

IX continued on its long-term path of stable, positive ­performance during the financial year 2016. Following S ­record trading activity and the excellent net financial result in 2015, SIX surpassed the strong operating results of ­previous years, despite the challenging economic environment. Our diversified business model, which makes us lessdependent ­ on specific business areas and markets, provedeffective ­ once again. As well as reporting on the past financial year, this Annual Report explains how our business model is constructed and why it is fit for the future. Every company has an underlying business model. Why are we focusing on something that is such a given? Because it ­actually isn’t at all! A value chain that still reflected reality only yesterday may already be obsolete by tomorrow. Our business environment changes extremely quickly, and with it the needs of our clients. From the current low interest rates and latest “Our clients and ­regulatory provisions through to the emergence of innovative shareholders motivate tech­no­logies and new global competitors entering the market, the pressure on our clients’ margins is and will remain high. us to carry on with They need to adapt to changing conditions. SIX must provide continuous further rapid, innovative solutions for these changing requirements. development.” This means that we, too, are constantly developing our business model for the benefit of our clients. Dr. Romeo Lacher, As the central infrastructure, we are best placed to take over Chairman of the Board of Directors from the banks those tasks that do not bring them any added value or help them differentiate themselves. They can then save costs and focus on their core competencies. This allows us to ­increase the business volume on our systems and expand our ­value chain to the benefit of all participants, thanks to effective economies of scale. Our strategy recognizes the constant chang- es in our sector as an opportunity. It aims to ensure we are agile enough to seize this opportunity. Our clients and shareholders motivate us to carry on with continuous further development so we would like to thank them for their trust and loyalty. Our employees are the driving force behind the transformation, and we would like to thank them for all their hard work and dedication.

Dr. Romeo Lacher Dr. Urs Rüegsegger Chairman of the Board of Directors Group CEO SIX 8 SIX Annual Report 2016

SIX remains firmly on track in a difficult environment and continues to pursue its ­ current strategy SIX continued to hold its position in 2016. ­Following the extraordinary results ­posted the previous year, operating income was up 1.5 % and operating profit rose 2.9 % to CHF 287.1 million. SIX generated CHF 297.1 million before interest­ and taxes­ and a group profit of CHF 221.1 million. The diversified business ­ model, rigorous cost discipline and strategy­ implemen­tation are paying off.

he diversified business model post-trading value chain and also makes SIX less dependent bundles volumes from Europe and T on individual business areas other countries on the platforms and markets. Income growth in the ­operated by SIX. Operating Securities Services, Financial Infor- SIX Financial Information re- income generated mation, and Payment Services busi- mained firmly on the positive course ness areas was thus able to com­ set in recent years, achieving a 3.5 % by SIX grew by pensate for the decline in securities ­increase in operating income by 1.5 % in 2016. trading. Although the situation on streamlining its global organization the global financial markets led to a and product range. SIX Payment fall in securities trading compared ­Services again profited from dynamic with the record levels achieved in the growth in cashless payments. Trans- ­previous year, the operating income action volumes continued to rise in ­generated by SIX rose by 1.5 % year 2016 – in the acquiring business they on year, to CHF 1,838.6 million. were about 11 % higher than in the ­Operating profit increased by 2.9 %. ­previous year. Read more about the per­- Turnover on SIX Swiss Exchange, form­ance of the business areas which had benefited from record EBIT at a level that is stable in the se­gment reports from page 12 ­onward. ­levels of trading activity in 2015 as long-term a result of volatile markets, reverted After an exceptional year in 2015, to a level that is stable long-term, when SIX posted a record result with average daily turnover of thanks to the sale of its shares in CHF 5.0 bil­lion in the year under STOXX and Indexium, together with ­review. At 64.6 %, the market share the highest-ever levels of trading for Swiss blue-chip trading was once ­activity, SIX generated earnings of again considerably better than that CHF 297.1 million before interest achieved by comparable European and tax (EBIT) in 2016 – a solid result markets. However, there was an on a long-term comparison. Adjusted ­overall decline in trades and orders. for special effects in 2015 and 2016, In SIX Securities Services, oper­ EBIT came in 5.0 % below the record ating income increased by 6.6 % amount achieved in the previous year. ­compared with the previous year. Owing to comparatively lower This rise was attributable to the sale trading turnover and the absent of a property. Adjusted for this spe- ­contribution to earnings by STOXX/ cial ­effect, the operating result re- Indexium, SIX Swiss Exchange posted mained largely ­stable, in line with the a decline in EBIT of 18.6 %; adjusted strong showing achieved in the pre­ for the absent contribution to earn- vious year. SIX Secu­rities Services ings, EBIT was down 4.6 % on the bene­fited from its broad-based range previous year. In terms of operations, of services, which serves the entire SIX Securities Services performed Report on the business year 9

steadily. EBIT rose by 50.2 %, buoyed which is sufficient for it to implement by the abovementioned property sale the necessary predefined measures and the sale of the ­business in the and investments. For 2016, the Board of Directors ­area of share register management It is complementing the financial of SIX recommends that the and annual general meetings (SIX strength it has built up over the years Annual General Meeting approve a ­dividend of CHF 7.30 per share. SAG Ltd). SIX Financial Infor­mation with further efficiency improvements This corresponds to a total sum of capitalized on its operational strength and rigorous cost discipline. The CHF 142.5 million. to drive its own transfor­mation for- present aim is to convert the chal­ ward. Restructuring costs caused lenges currently faced by the financial­ by integrating France into the global sector into opportunities for the cen- functional organization pushed EBIT tral financial marketinfrastructure. ­ down to CHF 26.7 million; adjusted­ SIX provides financial market partici- for special effects, earnings ­before pants with future-­oriented, inno­vative interest and tax rose by 9.0 % solutions, thus fulfilling the require- to CHF 57.3 million. SIX Payment ments of its clients and shareholders. ­Services also grew, posting EBIT of CHF 91.8 million (+4.2 %). The busi- The changing market environ- ness area capitalized on the con­ ment opens up opportunities for tinuing market growth in cashless growth payments and further expanded its The financial sector is currently international business in strategic ­undergoing a period of profound markets and segments. change, which presents fresh SIX is still experiencing high pres- ­challenges with ever increasing sure on margins and costs. It relies ­frequency. New competitors – some on the efficiency and agility of its from outside the industry – are ­organization in order to successfully ­entering the market, while stringent implement its strategy and realize regulatory requirements and techno- its ambitious growth targets in today’s logical innovations are increasing challenging economic environment. the existing pressure on margins and SIX has equity of CHF 2.6 billion, costs for all market participants.

Adjusted EBIT up 73.8 % since 2012

Development EBIT in CHF million 800 762.9 700 73.8 % 600

500 442.7 400

300 290.0 297.1 244.6 200

100 Operating profit EBIT 154.4 222.1 265.4 282.6 268.4 0 Adjusted EBIT 2012 2013 2014 2015 2016

2012 adjusted for Eurex effect 2012–14 adjusted for STOXX & Indexium effect 2015–16 adjustments please see footnote 1 of table on page 11 10 SIX Annual Report 2016

As the central player in the Swiss only by streamlining its organization, ­financial center, SIX is best placed further standardizing its product to develop forward-looking solutions range and optimizing its processes.­ that help the entire sector to success- SIX therefore constantly reviews fully deal with the challenges ahead. where it can eliminate duplication in The current state of upheaval offers its international organization or reduce SIX opportunities to develop its busi- costs through targeted outsourcing. ness model further and to increase At the same time, the stability­ of its business volume. its systems remains its top priority. SIX already offers banks the SIX also enhanced its risk manage- ­opportunity to optimize their busi- ment team in 2016. When a network ness processes through the targeted malfunction occurred in June, the outsourcing of non-differentiating ­Crisis Task Force was called out services. The medium-term goal on its first major deployment since is to bring other non-differentiating SIX was founded, and its concerted ­activities together on the central approach demonstrated its ability ­infrastructure of SIX and thus tap into to function well. During the year ­under new areas of business and generate review, SIX also focused on ­efficient, additional business volume. SIX is effective management of project work taking a two-pronged approach here: throughout the com­pany with the On the one hand, it is expanding its PM@SIX program. central services on a project basis The Board of Directors and or developing them further, and on ­Management Committee further the other it is working with its owners ­refined the strategy during the year and partners to test the possibility under review, particularly with SIX is an agile, of setting up additional services in regard to the company’s agility and forward-looking Switzerland. innovation capacity. SIX is aiming In the year under review, SIX to adapt to client requirements more technology launched a number of new in­ rapidly and on a more consistent partner for the frastructure services in the area of ­basis – whether by making existing banks. reg­ulation and compliance, for exam- services more efficient or by ple. By centralizing and automating ­devel­oping new and innovative tax services, it can achieve huge ­solutions. cost savings for its clients; similarly, it can offer them efficient assistance The innovation capacity of with the extensive documentation SIX helps the financial center obli­gations arising from the investor compete internationally ­pro­tection that is required by the In 2015, SIX initiated an internal EU. While complying with regulatory ­cultural transformation by means ­requirements imposes a considerable of its long-term innovation strategy. burden on each individual bank in By the end of December 2016, some terms of both time and money, SIX 251 project ideas had been submit- is able to benefit from economies of ted by employees via a specially scale as a result of increasing vol- launched internal online platform; umes. Sector-wide outsourcing there- about 30 of these are currently fore makes the necessary processes­ being closely evaluated by innovation cheaper for everyone. ­managers at SIX, and some are being pursued ­further. An agile organization SIX is a driving, innovative is crucial to success force in the Swiss financial center. In order to keep its prices competitive, In May 2016 it reached agreement SIX relies not only on growth but also with the six biggest Swiss banks on further improving its ­efficiency on a joint national­ mobile payment and cutting its costs. It can achieve system. This joint venture, known by a sustainable increase in profitability the name of TWINT, unites the two Report on the business year 11

existing systems run by SIX (Paymit) in the field of information security. and PostFinance (Twint). Together, This research partnership was es­ these form the most-used payment tablished in November 2016 and is app in Switzerland.­ scheduled to last 12 years. It has In October 2016, SIX also opened a special focus on the field of cyber up its FinTech incubator F10 to security and innovation­ in the cloud. Financial services providers, ­other companies in the financial Through these partnerships, ­scientists, FinTech companies, ­industry. SIX uses F10 to develop SIX is continuing to expand its own and start-ups are brought together ­under the umbrella of the newly ­prototypes of new solutions, working opportunities to create value, while formed association F10 Incubator & together with stakeholders and in also making an active contribution Accelerator. close collaboration with clients. At to the international attractiveness, the same time, it supports an acceler- ­security, and competitiveness of the ator program for selected start-ups Swiss financial center. during the different phases of setting up a company. As an active coop­ eration partner of the Zurich Infor­ mation Security and Privacy Center

(ZISC) at the Swiss Federal Institute Additional information and of Technology­ in Zurich (ETH), SIX figures can be found at ­also employs teaching and research six-group.com/annual-report

Overview of key figures in CHF million 2016 2015 Change in %

Figures Total operating income 1,838.6 1,810.9 1.5 Total operating expenses –1,551.5 –1,531.9 1.3 Operating profit 287.1 279.0 2.9 Share of profit of associates –0.3 15.5 –102.2 Net financial result 10.4 468.4 –97.8 Earnings before interest and tax (EBIT) 297.1 762.9 –61.1 Earnings before interest and tax (EBIT) adjusted for special effects 1 268.4 282.6 –5.0 Group net profit 221.1 713.7 –69.0 Balance sheet total as at 31/12 10,279.5 8,755.8 17.4 Workforce as at 31/12 (full-time equivalents) 3,807.1 3,858.2 –1.3

Ratios (in %) Return on equity 2 8.8 30.4 –70.9 Equity ratio 3 79.3 76.4 3.8

1 Total special effects in 2016 came to CHF 28.7 million and included the income from the sale of a property (CHF 26.0 million), the disposal profit on the sale of SIX SAG Ltd (CHF 5.4 million), the disposal profit on the sale of the companies of the sub-group SIX Payment Services Luxembourg (CHF 3.9 million), the effect of reorganization in France (CHF –34.4 million), the IAS 19 effect of pension fund plan changes (CHF 26.8 million) and the residual net financial result (CHF 1.1 million). The special effects of CHF 480.3 million in 2015 included the contribution to earnings by STOXX Ltd and Indexium Ltd in 2015 (CHF 476.8 million) and the residual net financial result (CHF 3.5 million). The shares in STOXX Ltd and Indexium Ltd were sold in 2015. 2 Equity = average equity between 31/12/2015 and 31/12/2016 3 Total equity/(total adjusted liabilities + total equity); total adjusted liabilities (2016: CHF 652.8 million/2015: CHF 726.9 million) equal total average liabilities (2016: CHF 7017.8 million/2015: CHF 6,906.2 million) less average liabilities from clearing & settlement (2016: CHF 6304.2 million/2015: CHF 6,111.2 million) less average ­n­egative replacement­ values from clearing & settlement (2016: CHF 60.8 million /2015: CHF 68.1 million). 12 SIX Annual Report 2016

SIX Swiss Exchange: firmly on course After a highly volatile year on the stock markets in 2015, trading turnover on SIX Swiss Exchange returned to normal levels in 2016. Operating income fell by 9.1­ % to CHF 188.5 million. Adjusted for the absent contributions to earnings­ by the shares in STOXX and Indexium, which were sold in 2015, EBIT was 4.6 % down on the previous year. However, fiveIPO s and the successful­ launch of the SwissAtMid service demonstrated the high quality and forward-looking ­approach of the Swiss stock exchange.

evenue from trading and Swiss capital market listing continues to contribute remains attractive R the most to the turnover of IPOs during the financial year in­ SIX Swiss Exchange. Trading turn- cluded real estate companies Investis over across all securities declined Holding and Varia US Properties, by 6.8 % compared with the previous cyber­security company WISeKey, SIX holds the year. Neither the Brexit vote in the Austrian vehicle group KTM Industries, rights to all Swiss UK nor the presidential election in the and VAT Group, a global leader in US affected the markets as strongly vacuum technology. With a market indices, including as the Swiss National Bank’s deci- capitalization of CHF 1.56 billion and SMI and SPI. sion to discontinue the exchange a transaction volume of CHF 624 mil- rate floor in 2015. There was a corre- lion, the latter was the largest IPO sponding decline in trades and or- on SIX Swiss Exchange in 2016. ders, although the average daily turn- In order to ensure that listing on over of approximately CHF 5.0 bil­lion the Swiss stock exchange continues was in line with the levels ­recorded to be attractive for small and medium- over many years. sized enterprises too, SIX Swiss Ex- While lower volatility on the change launched the Stage program ­markets had a negative impact in September 2016: In partnership on ­equity trading, trading in the with Morningstar, a leading provider­ ETF segment­ hit an all-time high of investment analyses, it helps SMEs of CHF 103.8 billion, beating the prepare investor information tailored ­pre­vious record achieved in 2011 to particular target groups. The com- (CHF 101.9 billion). panies may also choose to take advan- Since September 2016, SIX has Foreign-cur­rency bonds also tage of improved research coverage offered additional, factor-based ­performed well throughout the through the following partner banks: investment opportunities through the new SPI Multi Premia indices, year: compared with 2015, SIX Swiss Bank am Belle­vue, Vontobel, and which have attracted considerable Exchange recorded­ almost 36 % Zürcher Kantonalbank. This program attention. more trades and a 34 % increase aims to increase the long-term visi­ in turnover. bility of SMEs so that they can make By contrast, the persistently low more efficient use of the capital interest rates had a negative ­effect ­market for growth purposes. on trading in Swiss franc bonds and structured products: The most sig­ Targeted growth initiatives nificant drop in turnover was for For a number of years, SIX has pro- structured products, at around 39 %, vided liquidity on its trading platform while bonds fell by 23.3 %. All seg- via targeted measures in order to ments ­recovered slightly at the end ­retain its market share in the face of the year. of fierce competition from other Swiss Exchange 13

­trading platforms. The attractiveness Both SwissAtMid and SLS are trading of the Swiss stock exchange is pri- services without pre-trade transpar- marily due to the high probability of ency that comply with Swiss and Two-thirds executing an order at the best price. Euro­pean financial market regulation. of turnover In 2016, SIX Swiss Exchange offered the Euro­pean Best Bid and Offer Equivalence with EU law in Swiss blue (EBBO) for its securities in over 83 % is crucial for the future chips originates of intraday activity. Market share for Equivalence with EU law in particular from trading domestic equity trading fell slightly is vital in order to maintain the inter- year on year, but remained well national attractiveness of the Swiss ­participants in above that of comparable European capital market and the importance the EU. markets (64.6 %). of Switzerland as a trading venue in An estimated 10–15 % of volume Europe. The EU must recognize Swiss for Swiss equities in Europe takes financial market regulation as equiv­ the form of non-displayed trading. alent by the end of 2017 so that par- In order to enable its participants to ticipants based in an EU country can execute these order types on more continue to trade on a Swiss stock favorable terms, in October SIX exchange. SIX Swiss Exchange is ­successfully launched the new non- working very hard to implement the displayed liquidity pool for Swiss new requirements arising as a result equities,­ SIX Swiss Exchange At of the Swiss Financial Market Infra- Two months after the launch, Midpoint (SwissAtMid). SIX thus structure Act (FMIA) and the European SIX Swiss Exchange was achieving ­expanded its existing offering for Markets in Financial Instruments turnover averaging CHF 14.4 million per day with SwissAtMid. large block transactions in European ­Directive (MiFID II/MiFIR). equities, SIX Swiss Exchange Liquid- net Service (SLS). SwissAtMid allows trading participants to execute an ­order at the midpoint of the best bid and ask price in the list order book, thus achieving a better tradable price.

Key figures for the Swiss Exchange Share of turnover of tradable products business area

Change Bonds CHF 2016 2015 in % 10 % Operating income (in CHF m) 188.5 207.4 –9.1 Bonds ex CHF Operating profit (in CHF m) 69.2 73.2 –5.5 2 % EBIT (in CHF m) 69.3 85.1 –18.6 Equities 7 8 % Workforce as at 31/12 163.3 159.0 2.7 ETFs ­(full-time equivalents) 9 % Stock exchange trading volume 1,279.3 1,372.5 –6.8 (in CHF bn) Structured products Number of transactions (in m) 47.6 51.5 –7.7 1 % Number of tradable products 32,188 35,044 –8.1 SPI market capitalization 1,221,256 1,286,785 –5.1 (in CHF m) 14 SIX Annual Report 2016

Self-regulation of the trading platforms of SIX Exchange Regulation is an autonomous unit within SIX that is responsible for issuer and participant regulations for the trading platforms SIX Swiss Exchange, SIX Structured Products Exchange, and SIX Corporate Bonds.

n accordance with the Swiss The Regulatory Board, which ­Financial Market Infrastructure is responsible­ for setting the regula­ I Act (FMIA), which came into force tions for issuers (regulations, guide­ on 1 January 2016, trading platforms­ lines) and participants (Rule Books, are required to issue, ­monitor, and directives), constitutes the legislative ­enforce regulations for their issuers arm. It delegates some of its powers and participants. SIX ensures­ strict to the Issuers Committee and to the separation of operational activities Participants & Surveillance Committee. and regulatory functions. The regula­ The principle of self-regulation is tory bodies perform their tasks in­ complemented by the requirement for dependently within the framework of FINMA to approve the rules adopted.­ statutory self-­regulation. Under the self-regulation mandate, a distinction Looking back on 2016 is made between the setting (legis­ As the executive body, Exchange Please see lative) and enforcement­ (executive) Regulation is responsible for enforcing six-exchange-regulation.com of regulations and adjudication the regulations. Trading is monitored for further information. ­(judicial). by Surveillance & Enforcement, and Exchange Regulation 15

matters relating to the regulations of sanction decisions that have governing issuers are dealt with ­acquired legal force. by Listing & Enforcement. According In May 2016 the Board of Direc­ to the trading supervisory body, tors of SIX appointed Corinne Riguzzi ­trading in 2016 was conducted in as the new Head of SIX Exchange ­accordance with the regulations and Regulation with effect from 1 January without any serious incidents. In two 2017. The Swiss Financial Market cases, sanctions were imposed on ­Supervisory Authority (FINMA) has participants for breaching the Rule approved the election. Corinne Book. The results of the investiga­ Riguzzi succeeds Rodolfo Straub, tions into suspected cases of insider who headed SIX Exchange Regula­ trading or market/price manipulation tion from its foundation in 2009, were forwarded to FINMA and to and transferred his responsibilities the Office of the Attorney General. to his successor early in preparation In the area of issuer regulation, bonds for his retirement. and derivatives were issued at a brisk pace. Five Initial Public Offerings Please see the Swiss Exchange (IPOs) took place in the year under Segment Report, page 12 onwards ­review: WISeKey International Holding Ltd., VAT Group AG, Investis Holding SA, KTM Industries AG, and Varia US Properties AG. Adjudication is the responsibil- ity of the judicial bodies, such as the Sanctions Commission, Appeals Board, and Board of Arbitration. The Exchange Regulation website keeps the public constantly informed

Listing applications

2016 2015 2014 2013 Equity securities 180 194 129 119 Bonds 283 306 360 337 Derivatives 35,615 42,697 39,293 46,069 16 SIX Annual Report 2016

SIX Securities Services delivers a strong performance for the Swiss financial market In the highly competitive post-trade services area, SIX Securities Services made an extremely positive contribution to the Group’s overall result, with EBIT of CHF 70.6 million. Adjusted for the sale of a property, operating income remained at the same level as the operationally strong previous year. The business area achieved this result by responding to the increased demands being placed on the Swiss financial center and by initiating a transformation program to establish ­itself as a gateway and service hub for the Swiss financial sector.

IX Securities Services remained Global Custodian magazine. The at the same operationally strong ­magazine’s annual survey looked S level as the previous year: Ad- at the quality of the clearing, settle- justed for the proceeds from the sale ment, and asset servicing (Swiss of a large property in Zurich, oper­ and international) offerings. For the ating income remained largely stable second time in a row, SIX Securities (–0.7 %). This was despite lower ­Services scored top marks in ten Terravis. The electronic infor­ revenues from Swiss securities cus- out of twelve categories, in the Swiss mation portal for land registry data tody as a consequence of fewer set- market and as an ICSD. Furthermore, in Switzerland, and the fiduciary service for registered mortgage tlement transactions, and lower index the independent SIX client survey notes posted revenue growth of levels compared to the previous year. highlighted the above-average levels 32 % versus 2015. Market volatility and rising transac- of loyalty shown by clients of SIX tion volumes in connection with the ­Securities Services in comparison Brexit vote and the US presidential to its competitors. election did not fully offset the decline SIX Securities Services contin- in Swiss custody volumes. The sharp ues to build on its already excellent increase in operating income (+6.6 %) client retention levels. It is developing and EBIT (+50.2 %) is due to the men- ­platforms and services which provide Finalist at the tioned sale of real estate. added value for financial institutions Swiss ICT Award in view of increasing margin and cost 4 Translating Swiss quality pressures they face as well as the 2016: SIC , a pan- into international success tighter liquidity and regulatory require- European model The number of interbank payment ments. One example in this regard­ for a modern transactions grew (CHF: +1.7 %, is the February 2016 launch of the EUR: +6.5 %). The successful reengi- ­real-time CO:RE trading platform for ­p­ayment ­system. neering of the Swiss real-time gross repo transactions, which provides settlement system SIC with over its participants liquidity in 14 cur­ 330 participating financial institu- rencies. tions in Switzerland and abroad is a further milestone for SIX Securities Strategically adding value Services. As the first system of its through advanced services kind in ­Europe, the new SIC is based Over the next three years, SIX on ISO 20022 – an international stan- ­Securities Services is set to trans- dard covering various segments of form completely from a transaction the financial industry.SIX Securities provider to a service hub for Read more about on page 29. Services completed the project on the ­financial sector. Through such schedule and slightly under budget. a transformation, SIX Securities The high quality of services pro- ­Services aims to realize cross-market vided by SIX Securities Services was economies of scale and significant further confirmed by the industry’s cost savings for banks. Securities Services 17

On 1 January 2017, SIX Securities a MVP (Minimum Viable Product) Services launched its Tax Reclaim that could revolutionize the validation Service, the first component in a of corporate action data. A first Read more about the corporate comprehensive range of cross-market prototype using this technology has action prototype on page 33. automated tax services. The new been finalized. Tax Reclaim Service reduces the time-consuming and costly processes Interoperability produces Swiss investors face in the area of additional economies of scale withholding tax on interest and SIX relies on generating additional ­dividends from foreign companies. business volumes abroad in order The new Advanced Settlement to realize greater economies of Service from SIX Securities Services scale. At the end of March 2016, takes over the entire responsibility the European Securities and Markets for Standing Settlement Instructions Authority (ESMA) recognized SIX (SSIs) and reduces operational com- x-clear Ltd – the clearing arm of plexity and risk exposure consider- SIX Securities Services – as a central SIX Securities ably. Customers can save operational counterparty under the European Services had an costs, and free ­resources to concen- Market Infrastructure Regulation trate on their core business. (EMIR), which officially authorizes impressive pre­ SIX is also currently testing the it to provide cross-border clearing sence at SIBOS deployment and commercial viability services in the EU and to actively 2016 in Geneva, of distributed ledger technology tap into new business areas abroad. (DLT). Based on a prototype which ­Today, SIX x-clear is the preferred which reaffirmed has been created in cooperation with clearing partner­ for various trading the leading role Digital Asset Holdings, SIX Securities venues in Europe;­ more than 90 % played by Switzer- Services is exploring ways to opti- of its transactions come from outside mize collateral management in the ­Switzerland. land in the inter- securities finance area (collateral One year after the successful national financial ­optimization). In addition, the new launch of TARGET2-Securities (T2S) sector. technology has the potential for fast- and parallel to migration wave 3, SIX er product onboarding for the repo enriched existing settlement links trading platform. The potential for with T2S functionality and established DLT is also being explored as part of three new investor CSD links.

Key figures for the Securities Services Swiss Value Chain business area Change The Swiss Value Chain links trading on the Swiss stock exchange 2016 2015 in % with the services of post-trading. Operating income (in CHF m) 377.4 353.9 6.6 Operating profit (in CHF m) 64.9 44.8 44.7 Trading EBIT (in CHF m) 70.6 47.0 50.2 Workforce as at 31/12 509.8 499.7 2.0 ­(full-time equivalents) Clearing Number of settlement 37,561 40,762 –7.9 transactions­ (in 1,000)1 Deposit volume (in CHF m) 3,149,542 3,135,874 0.4 Securities settlement Interbank payments Number of clearing 423,935 398,773 6.3 transactions­ (in 1,000)1 Number of payment 511.7 514.1 –0.5 ­transactions (in m) Custody

1 The figures from the previous year were adjusted for comparison purposes SIX Securities Services provides the entire post-trade value chain. Further details since the calculation basis was changed at the start of 2016. in the “About us” supplement. 18 SIX Annual Report 2016

SIX Financial Information: focused growth strategy SIX Financial Information achieved operating income of CHF 402.6 million. This represents 3.5 % growth year-on-year when compared to 2015. EBIT decreased to CHF 26.7 million, primarily due to the restructuring costs arising from the integration of France into the global functional organi­zation. Adjusted for special effects, EBIT rose by 9.0 % to CHF 57.3 million. The aim is to further drive operating growth through focus and agility, and to generate added value for customers.

IX Financial Information con­ gate through the in­creasingly tinues on a sustainable growth ­com­plicated regulatory landscape. S path. Sales and revenue growth The European Union’s law for were strong in the core markets of packaged retail and insurance-based Switzerland, France, Great Britain/­ investment products (PRIIPs), effec- Greater trust Ireland, and the Nordic region, with tive in January 2018, creates a signifi- thanks to com­ Reference and Market Data products cant compliance challenge for the focused on tax and regulatory com- ­financial industry. Banks, derivatives pliance: The re­ pliance. Thanks to this operating exchanges, and insurance companies gulatory services ­performance, the business area can that intend to sell these products of SIX help banks continue its transformation relying in the European Economic Area must on its own resources. create Key Information Documents strengthen ties to The strategic and operational (KIDs). These KIDs provide distribu- their customers. alignment brings key geographical tors and retail investors with clear ­regions into the global business. ­information describing the product, It also makes it easier to build and its cost, and the risks associated with ­deploy globally scalable products, the investment. SIX developed an allowing­ SIX Financial Information to ­innovative industry hub for regulatory ­address key client pain points with document management that takes a unified approach. Further improve- all of these requirements into account ments and streamlining of the ex­ and offers its clients the required isting product portfolio, ­supported KIDs at the push of a button. The ser- by large-scale automation, are vice is a one-stop solution that does critical success factors for con- the heavy lifting of PRIIPs compli- tinued­ growth. ance by automating processes that are costly and complex for firms to Regulation as driver for set up in-house. The hub functions ­developing new products as a marketplace where manufacturers The other main driver behind pro­- can upload regulatory documents duct development within SIX Finan- and automatically make them avail- cial ­Information is market regu­lation able for retail advisors to retrieve in the areas of tax, compliance, and as needed. Future-proofed to take investor­ protection. SIX adds ­value ­upcoming regulations into account, to its offering by combining ­data and the hub goes beyond documentation know-how that help its ­clients navi- and can handle bidirectional data Financial Information 19

­exchange needed for 2018’s Markets by global sanctions. This enables in Financial Instruments Directive them to avoid fines and protect their (MiFID II) compliance. ­reputation. Winning streak: SIX also ranks SIX Financial Information Understanding, interpreting and as “Best Corporate Actions Data launched another new service in complying with regulatory demands ­Provider” in the Data Management Review Awards and – for the seventh ­connection with IRS Section 871(m), requires precise, high-quality data time in a row – in the Inside Refer- a US tax law that imposes a with­ and services. These capabilities make ence Data Awards. holding tax on non-US persons for SIX Financial Information a trusted certain investments with dividend- and preferred partner to the financial equivalent payments. The service services industry. ­provides the depth and breadth of ­data needed for compliance and New technologies offer flags instruments that fall in scope ­opportunities of the regulation. The offering en- Innovation, either in-house or in ables financial institutions to support ­cooperation with technology part- derivatives and structured products ners, opens doors to new opportuni- investment and trading while re­ ties. For example, using distributed maining compliant. The IRS 871(m) ledger technologies SIX is developing service is built upon SIX Financial a new capability that will revolu­ ­Information’s ­excellent Corporate tionize data validation for corporate ­Actions capa­bilities. ­actions. The vision: All stakeholders SIX Financial Information also can access the same information won “Best Compliance Solution” at the same time, which greatly sim- at the Systems in the City Awards for plifies and accelerates the entire data its innovative Sanctioned Securities management process as well as the Monitoring Service that allows fi­ validation of corporate actions. You can read more about nancial institutions to receive, in an the ­innovative idea of X-Chain for ­efficient and transparent manner, ­corporate actions on page 33. ­information about which securities and regimes are currently affected

Key figures for the Financial Information Number of financial instruments business area

Change in million 2016 2015 in % 25 23.7 Operating income (in CHF m) 402.6 389.0 3.5 Operating profit (in CHF m) 25.7 52.6 –51.1 20 19.7 EBIT (in CHF m) 26.7 53.9 –50.5 Workforce as at 31/12 15.7 890.8 1,053.1 –15.4 15 (full-time equivalents) 12.4 Number of financial 11.0 23.7 19.7 20.1 instruments (in m) 10 8.6 Number of price updates 1,886.3 1,776.9 6.2 per year (in bn) 5

0 2011 2012 2013 2014 2015 2016 20 SIX Annual Report 2016

SIX Payment Services: market growth and increased efficiency Cashless payments are an important area of activity for SIX: At CHF 91.8 mil- lion (+4.2 %), SIX Payment Services contributed the most to the Group’s EBIT. Thanks to rising transaction volumes, new services, and improved margins, the business area generated operating income of CHF 885.0 million in 2016. It responded to the international competition and price pressure in the market by demonstrating high quality and proximity to clients.

n 2016, transaction volumes with the latest-generation models in the Europe-wide acquiring during the course of 2016 and through I business were again higher to the end of 2017, and simultaneously than in the previous year (+10.6 %). offering merchants flexible contract The number of transactions pro- models. SIX is thus already providing cessed by SIX on behalf of banks the infrastructure for contactless ­(issue ­processing) also rose by 9.3 %. ­payment by mobile phone. Good performance in the foreign Since May 2016, SIX has also been ­currency business for international offering its clients a data analysis SIX developed “my Analytics” debit and credit card payments tool: Aggregated and anonymized data in the F10 Incubator & Accelerator. ­(dynamic ­currency conversion – about card payments give sales outlets This will enrich and further optimize services with external data. DCC) also made a positive contri­ useful pointers on how they can im- bution to the business area’s prove their offering or boost their oper- ­earnings in the year under review. ational efficiency, among other things. The cashless payment business Furthermore, at the end of 2016 still has considerable growth potential. SIX announced its collaboration with However, continuing international­ Chinese payment service provider ization, increasing competition, and ­Alipay: SIX is to integrate the latter’s extensive standardization mean payment app, which is popular with that pressure on margins and market Chinese customers, into its point- share is rising along with volumes. of-sale solutions. In future, Chinese SIX Payment Services is therefore tourists will therefore be able to use concentrating on building up its busi- a ­familiar method of payment through- ness in strategic markets and seg- out Europe at payment terminals ments, and developing competitive operated­ by SIX. products and add-on solutions. With the wide acceptance of ­different payment solutions and the Expanding business volume provision of client-oriented services, through innovative solutions SIX aims to satisfy retailers’ require- As well as accepting a broad range of ments fully and maintain its position payment cards widely used through- as the best partner for payment out the world, modern terminals from ­processing. Omni-channel solutions SIX also support contactless pay- are therefore another key theme Contactless is the way ahead – ment using NFC. They thus already for retailers and service companies. and this applies to debit cards meet a fundamental requirement for In 2016, SIX successfully implement- too: At the end of December 2016, SIX was processing payments NFC-based mobile solutions. To enable ed related projects for a number not only for retailers but also for its clients to offer NFC technology of modern hotel chains, including in 49 card-issuing Swiss banks. ­nationwide while meeting the highest Germany and the Netherlands. Thanks secu­rity standards, SIX is replacing to secure, fully integrated payment around 100,000 payment terminals functions, hotel stays can now be Payment Services 21

­fully automated, from reservation business even when faced with through to check-out, and can also new, internationally active competi- be settled by smartphone. Using their tors. At the end of May 2016, SIX mobile phone as a room key saves strengthened the hand of the Swiss guests any administrative inconve- financial center by reaching an agree- In record time, nience at the hotel. ment with the six biggest banks SIX equipped the ­regarding a joint national mobile Competition necessitates ­payment ­system. This joint venture, Swiss Post with focusing on your own strengths known by the name of TWINT, unites 5,000 payment SIX is also a central partner for banks the two existing systems, Paymit and terminals in that, in view of cost pressures and Twint. Together they form the back- ­reduced economies of scale, want to bone of the most popular payment 2016. They accept outsource part of the value chain in app in Switzerland. SIX continues to all major debit the card business. In the fields of process all payments carried out and credit cards. both acquiring and processing issuing via the app. transactions, SIX Payment Services In order to ensure the prices of ­offers the banks comprehensive busi- its services remain attractive, SIX ness process outsourcing. At present, strives to cut costs and to standard- for example, it is developing a new ize and automate processes while and universal generation of ATM soft­ maintaining quality standards at ware for all Swiss banks. The objec- their current high level. To this end, tive is to standardize ATM services SIX Payment Services is expanding in Switzer­land, offer new operating the Warsaw office into a service ­models, and thus realize significant ­center. The business area is gradually economies of scale for the entire transferring administrative processes ­sector ( ATMfutura project). to Warsaw, especially those that Find out more about Banks demand innovative, cus- do not require direct proximity to the ATMs of the future tomer-focused solutions so that the ­client. Strategic and systemically and the ATMfutura project from page 30 onward. they can continue to fulfill their key ­important services will remain in function in the payment transaction Switzerland.

Key figures for the Payment Services Key markets for Payment Services business areas

Change Payments with credit, 2016 2015 in % debit, and prepaid cards

Operating income (in CHF m) 885.0 882.8 0.3 Switzerland 54.3 % Operating profit (in CHF m) 92.9 90.8 2.3 Other 14.8 % EBIT (in CHF m) 91.8 88.1 4.2 Workforce as at 31/12 Luxembourg Austria 905.4 1,086.9 –16.7 (full-time equivalents) 3.6 % 27.4 % Acquiring turnover (in CHF m) 75,407.9 70,124.2 7.5 Transactions for issuers Number of card transactions Switzerland 3,661.2 3,398.3 7.7 of debit and bank cards processed (in m) 46.2 % Number of payment cards 27.2 26.2 3.6 (in m) Other 2.8 % Austria 44.3 % Luxembourg 6.8 %

is still going strong. still is center, for opportunity presenting an ahead lie forNew challenges the financial center. financial the Swiss supporting Straight to the point to Straight Group says “We’re of the midst atransformation,” in Interview infrastructure of The networked: globally agile, Stable, graphic Info What’s where happening at explains why the businessexplains model of are being put being intoare practice. of how the four strategic directions examples First itself? transforming How where and the company is CEO Urs Rüegsegger – who who – Rüegsegger Urs SIX is a central pillar pillar acentral is SIX ?

SIX

SIX

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Business model with a future 24 The infrastructure of SIX can respond to any challenge

The financial sector is undergoing radical changes. Globalization, regulation, digitization – mega­trends that have fundamentally altered entire industries in­­­­­­ recent decades – are also driving transformation in­­ the financial industry at an increasingly rapid pace. The banks have a strong partner in SIX: The central infrastructure is stable – and can be expanded further.

Swiss Payment Exchange Services

Financial market players Securities Financial Services Information SIX is owned by approximately 130 ­national and international banks that are active in the Swiss Infrastructure of SIX ­financial center. They are also the main clients of SIX. ­However, SIX uses its infrastructure to SIX is active in four business other financial market ­players generate, transmit, and store areas. This diversified business also use the infrastructure: These transactional and financial model makes it particularly include issuers (Swiss Exchange), data, thus linking financial stable financially. Find out more media (Financial ­Information) market players in Switzerland in the “About us” supplement. and retailers ­(Payment Services). and throughout the world. Business model with a future 25

New Margin Digitization Regulation competitors pressure

Strategic directions

Expansion of business volume Thanks to effective economies of scale, SIX keeps prices competitive.

Industrialization of business model SIX increases its profitability through improved efficiency and cost discipline.

Enhanced capacity for transformation SIX fosters the organization’s ability to develop further.

Strengthening of innovation capacity SIX opens up new opportunities for its clients by providing innovative solutions. 26

Interview with Group CEO Dr. Urs Rüegsegger “We’re in the midst of a transformation” Business model with a future 27

New technologies, international competition, complex regulatory requirements: The financial sector faces unprecedented challenges. Costs are rising. Margins are falling. Traditional business models are coming under increasing pressure. In this interview, Group CEO Dr. Urs Rüegsegger explains why the business model of SIX is still going strong, and how the Swiss infrastructure can take advantage of the transformation currently taking place.

Mr. Rüegsegger, is the existence of a central But surely these developments also affect SIX? ­infrastructure for the Swiss financial center Of course. Ultimately it is our business still justified, given the global momentum ­environment that is changing at such great in the ­financial industry? speed. Current developments could potentially Absolutely – more than ever, we believe. change our company fundamentally, because of new competition from global technology Please explain. ­giants such as Google or Apple, for example. It enables the participating financial market Then there are financial market regulations, players to deploy their resources in the right which could deprive us of market access in places – in other words, where they think they Europe if we fail to meet the EU’s equiva- are needed. Services they cannot use to differ- lence requirements. And, of course, we feel entiate themselves can be outsourced to us. the ­effects of the cost pressure faced by This makes them more flexible and gives them our ­clients too. the opportunity to benefit from economies of scale that go beyond their own limited size. What is SIX doing about this? Our diversified business model allows us to What challenges does the financial sector ­reduce our dependency on individual business face at present? areas and markets. That makes us financially Overall, it faces the megatrends that have stable – the best position from which to react ­already fundamentally altered other sectors: appropriately to changing market requirements. globalization, regulation, digitization. These We never stand still and we keep an eye on how ­developments have led to huge upheavals our environment is changing. We, ourselves, in other sectors over the past few decades. are already in the midst of a transformation. The same “wave” is now rolling towards the ­financial industry. How does this transformation look, and what are the strategic considerations behind it? So what does this mean exactly? Two considerations are of central importance: Modern technologies make tried-and-tested First, we regard the challenges currently con- products and services “look outdated” from fronting the sector as growth opportunities one day to the next. New competitors – many for SIX. We are confident that a central infra- of whom are not traditional financial sector structure is still well worth having even in the ­players – are entering the market. They system­ current state of upheaval, and that we will atically focus on providing a new experience be able to tap into other areas of business. for the customer, and force their way ­into Second, we are aware that SIX needs to be- the relationship between customer and bank. come even more agile and flexible if it is to Pressure on business models is inten­sifying. ­remain a relevant partner for its clients in a At the same time, the established players ­dynamic economic environment. Our ­stra­tegic are coming up against an ever denser array directions for the period to 2019 are based of international­ regulations, and this in turn on these two considerations. creates new costs. 28

What are these strategic directions? are simultaneously obliged to guarantee the We are concentrating on four: expanding stability of our systems and the quality of our our business volume, industrializing our services at all times. There is no doubt that ­business model, strengthening our capacity the move to a shared location in Zurich West for innovation­ and enhancing our ability for is another­ important step. As described on ­transformation. To this end, we have defined page 29, this will make it even easier for our ­appropriate measures for the entire company four business areas to communicate with as well as the individual business areas. one another. Improving the way we manage projects is also crucial if we are to become [The first specific examples of implementation more agile. We are doing this by means of the are described in the pages that follow this PM@SIX package of measures. ­interview – Ed.] Is SIX also taking action on the cost side? Let’s take the example on page 30. Yes, we as an organization must – as previ­- That’s the ATMfutura project. ously mentioned – become more efficient. On the one hand this aim refers to the How does this generate business volume? absolute size of our cost base, which should The first step is to standardize the software grow ­considerably more slowly than turnover. used in ATMs. At present, each bank is It also covers issues related to outsourcing ­running its own solution. By standardizing or transferring activities to cheaper locations. and operating­ this service, we can realize Furthermore, we also need to boost our ­significant economies of scale for the entire ­scalability: in other words, achieve an above- sector. At the same time, we are creating average increase in profitability with new the necessary conditions for taking over other ­revenue. In particular, this means reviewing steps in the value chain. SIX could offer the and harmonizing the product range. whole range of services, from evaluating ­locations and installing, operating, and equip- And how important is it to develop new ping ATMs right through to their disposal. products and services? It is absolutely crucial for us to open up SIX also wants to become more agile, and respond new opportunities for our clients by offering more quickly and flexibly to client requirements. innovative solutions. We will target invest- How is it setting about achieving this goal? ments in digitization so as to be better pre- When developing new products, we place pared to meet the needs and wants of an ­emphasis on discussion and close collab­ ­increasingly digital world. oration with our clients and partners. This is shown by the examples on pages 29 and 33. In August 2015, SIX also founded F10 in order Of course, we have the advantage that our to create the necessary conditions for innovation ­clients are also our owners. We are therefore and speed up the development of new processes. always close to the market. The gratifying Yes, F10 is still the innovation center for SIX. ­findings of our annual client satisfaction That is where we use an agile process to ­survey also reflect this. A total of 52 % of ­develop prototypes that we intend to quickly our ­clients award us top marks and see us turn into marketable products, provided our as an important strategic partner. clients say they pass the test. In October 2016 we changed F10 into an association in order So what’s new in the relationship with clients? to open it up to other companies in the financial We are involving our clients even more ac­tively sector. Bank Julius Baer and PwC Switzerland in the development of products and services. are among the first members. Collaborating This allows us to ensure we are devel­oping within this network will benefit not only us, ­exactly what the market needs. And also that but also the entire financial center. we ourselves are developing in areas in which we can be of use to the market.

And how is SIX becoming more agile? We are working intensively to streamline our international organization further and speed up our processes. This is a challenge, because we Business model with a future 29

New location: Hard Turm Park

Strong together In 2017 SIX is reducing 1 its four, historically One company: By relocating to separate, Zurich lo­ cations to a single shared location Hard Turm Park, SIX is bringing in Zurich West. its four Zurich offices together, nine years after the merger. The move will take place in stages Bright, modern from the end of March 2017. The offices new building in Zurich West offers the opportunity to introduce flex- ible workstations. This makes it easier to put teams together quick­ ly and flexibly for project work, while at the same time ensuring 800 employees better capacity utilization for part- are moving in time working and job sharing. ­ No more The relocation to a central Zurich traveling between location will significantly improve locations working conditions for employees in Zurich and will help the busi­ ness areas communicate with each other more effectively.

Post-trading

 Embracing Internal

Targeted External transformation employee training Regular Simplified information processes and SIX Securities Services aims updates for pricing models Partner- ­to establish itself as a service employees schaften hub for the financial industry. Client focus In order to deal with trans­ Client Authentic formation successfully, the Competitors satisfaction communication survey ­business area is focusing even Strategic Client more strongly on the needs network Clients feedback during of its ­clients. In 2016 it therefore product development partners Partner- ­invested in relevant employee schaften Partnerships training courses. New services, such as the CO:RE repo trading European infrastructure Specialists Advanced platform for the SNB and the providers Tax Services Tax Reclaim Service in collabo­ Regulators Advanced ration with pilot clients, were in Switzerland Settlement set up with strategic partners. and abroad Services The result: Client satisfaction New improved significantly com­ services pared with 2015; clients show exceptional loyalty to SIX Secu­ rities Services compared with its competitors. 30

A new standard for ATMs One for all Thanks to the ATMfutura project, In a tower block near Zurich, 17 monsters, Swiss banks can save costs along each weighing up to a tonne, are lined up­­ the ­entire ATM value chain. SIX is in rows. These are ATMs in the test center ­creating a universal software solution set up by SIX. With real machines and as the basis for ­­­­­­­­a complete package ­fake bank notes, the testers – assisted by of future services. Business model with a future 31

“ROGER” the robot – run through­ every for ATMs. From 2018 onwards, it is conceivable scenario. ­expected to be used in all ATMs across Together with its partners, SIX has Switzerland. Today there are over been commissioned by the Swiss banks to 20 ­individual solutions in use in the develop a multivendor software program Swiss market, from four different

The ATMs weigh up to a tonne. They are therefore placed ­parallel to the steel joists in ­­ the tower block, which had to meet certain static criteria.

On the right track with fake money. If something works on this ATM, it must also work on the other 17 test machines – and therefore on every ATM in Switzerland. 32

“ROGER” the robot is a very special employee. He can test things all day and all night.

A computer simulation tests the software ­independently of the machines before it is ­installed on the different ATMs.

manufacturers. A common standard and managing their ATMs. By offering ­increases reliability and saves costs in a central monitoring, SIX – together business field where it is ­impossible for with the multivendor software – creates the banks to differentiate themselves. the necessary conditions for taking The multivendor software is the over other elements in the value chain. first step in the ATMfutura project. This This may include evaluating locations, ­venture reflects the corporate strategy: and installing, equipping, or disposing of interbank ATM transactions already the ATMs. The actual aim of ATMfutura run via the systems provided by SIX. is to offer a comprehensive package in By using universal software, however, this business area. This is where enor­mous SIX can increase­ the processing depth potential is to be found: Banks wishing of transactions within banks. The trans­ to outsource the operation of their ATMs action volume on the existing systems to SIX can expect significant cost savings, of SIX would thereby increase. thanks to standardization, volume bun- dling, and process opti­mi­zation. For its The objective: a comprehensive package part, SIX is placing its business model on In the future, ATMfutura will also relieve an even broader footing. the banks of the burden of monitoring Business model with a future 33

Blockchain technology Wikipedia for corporate actions

SIX wants to improve data quality and efficiency in the corporate action process, thus minimizing the risks. A sectoral community is being set up using blockchain technology.

Every year millions of events such as dividend payments, stock splits, and capital increases occur in global securities trading. These corporate actions affect hundreds of market participants in each case. From the issuers who trigger them, through to the investors affected, corporate actions pass through numerous stages. Redundant manual pro- Dr. Alexandra Schaller, Head of Custody cesses slow down the process. Together with clients and Operations at Zürcher Kantonalbank, ­industry experts (see interview), in the F10 SIX is pursuing a new means of processing corporate actions: at a high acted as an external mentor during the ­level of quality, efficiently, and with minimal risk. development of a functional prototype of X-Chain.

What part of participating in the X-Chain ­project appealed to you? Issuer SIX was the first to tell me about an example of a blockchain application in which the focus Central securities was on a business process rather than on the

depository technology. I was also curious to know how ­sharing knowledge within a community can make the processing of corporate actions more efficient. The concept sounded very promising,

Custodian bank as did the unconventional approach. X-Chain What was special about this approach? A small, agile team developed a functional ­prototype within a short period of time and at low financial risk. We were thus able to ­subject X-Chain to a reality test at an early stage. We continued to develop what worked and threw the rest out. There was no exact specifi­cation for the end product. Fund manager

What was working with SIX like for you? Investor SIX operates an established infrastructure, has well-qualified staff, and benefits from an ­extensive network. I think it is a good ­strategy to draw on these resources while at the same time supporting developments outside the The X-Chain combines the wisdom of the crowd as used ­normal structures. The commitment to the F10 by Wikipedia with distributed ledger technology (block- and projects such as X-Chain are good exam- chain). It allows market participants to validate corporate ples of this. I noticed a passionate ­interest in actions in collaboration. They share their knowledge the ­future of the Swiss financial ­center here. in a kind of social network. They evaluate each other in return. An incentive system rewards accurate data. More … … financialabout the Swiss center … about FinTech and innovation The animations: charts, videos, More … about innovation at at innovation ordered at publishedis ayear. twice It be can Park site Zurich West. in Come at see us and the Turm new Hard center. June in 2017. Opens development financial of the Swiss discover more about and the history Museum Finance Visit to the Swiss the Latest news on the FinTech scene and of Find out more about the involvement RED interviews: reports, stories, More SIX online at online SIX Annual Report 2016 Report Annual available also is F , the business from magazine 10 Incubator in the field of the field FinTech in and SIX

six-group.com/annual-report six-group.com/red six-group.com/fintech six-group.com/fintech & Accelerator at

f10.ch SIX

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36 SIX Annual Report 2016

Demonstrating responsibility means maintaining stability and strengthening the attractiveness of the financial sector The business model and principles of corporate governance at SIX foster ­sustainability and longevity. The principles adopted in 2015 took hold in 2016. SIX works with stakeholders to identify key themes in two areas: “Stability and attractiveness of the financial sector” and “Responsible ­employer”.

orporate responsibility at is recognized as equivalent in terms SIX is directly linked to the of international supervision. The C Swiss ­financial center and ­European Union (EU) must recognize the Swiss economy. Its efficient and Swiss financial market regulation as ­innovative platforms in the areas equivalent by the end of 2017 so that Over 330 finan- of securities trading and post-trading, participants based in an EU country cial institutions ­financial information, and payment can continue to trade on a Swiss transactions ensure an efficient, stock exchange. SIX Swiss Exchange settle more than ­stable flow of information and money is working very hard to implement 440 million pay- between banks, merchants, investors, the new requirements arising from ments through and service providers in Switzerland the Swiss Financial Market Infra­ and abroad. In addition, SIX ­offers structure Act (FMIA) and the Euro­ SIC each year Swiss companies attractive opportu- pean Markets in Financial Instruments and can count nities to raise capital. SIX is thus ­Directive MiFID II /MiFIR. In the field on a system of central importance to the stability of central safekeeping (custody), SIX of the entire economy. is also working to achieve recognition availability­ rate of equivalence in 2017. of 99.95 %. International network needs equivalence The Swiss financial center The Swiss economy benefits from remains attractive thanks to the strong international network built projects such as SIC4 Find out more about SIC4 at up by the financial center. It is there- Organizationally, SIX bundles its sic4.info fore important for SIX, as the operator ­systemically important activities of the financial market infrastructure, for the Swiss financial center in the that Swiss financial market regulation ­Securities Services business area. Corporate responsibility 37

These include real-time payments SIX launched new future-oriented ­between banks. The Swiss real-time services that will boost the competi- gross settlement system SIC for tiveness of all market ­participants ­payments in Swiss francs plays a and the Swiss financial center. key role in the Swiss financial center. For instance, an innovative plat- It is the central system of the Swiss form from SIX Financial Information National Bank for implementing its makes it easier for clients to meet monetary policy and thus for ensuring compliance requirements. When the the supply of liquidity for the Swiss PRIIP ordinance comes into force in money market. As an integral com­ 2018, it will be necessary for banks, ponent of the Swiss value chain, derivatives exchanges, and insurance it ­fa­cilitates the cash-side settlement companies that intend to sell pack­ of securities­ transactions in real time. aged retail and insurance-based After six years of planning, SIX ­investment products (PRIIPs) in the successfully rolled out the new European Economic Area to prepare SIX provides payment­ system SIC4 in April 2016. basic information sheets. The plat- advanced services Thanks to SIC4, the Swiss financial form provided by SIX functions like a center is the first in Europe to imple- marketplace to which product provi- to help its clients ment the new international message ders upload these required regulatory reduce their standard ISO 20022, not only for documents so that they are auto­ risks and costs. ­interbank business but also at the matically available for private client ­interface between customer and bank, advisors to consult as necessary. thus driving forward the harmoni­­ From 2017 onward, SIX will also zation of payment transactions in be able to support its clients even ­Switzerland. SIC not only makes pay- more effectively in the areas of ment processing cheaper and more ­se­curities settlement and taxation. secure, it also improves interfaces SIX Securities­ Services is launching with apps and automated processes a number of advanced services for accounting within companies. that will help its clients reduce their ­operational complexity in these areas Boosting competitiveness through while cutting their risks and costs. More information available forward-looking services in the Securities Services Segment Projects such as SIC4 make an im- Highest standards of ­Report from page 16 onward. portant contribution to the ongoing data ­protection development of the financial center Protecting client data is of central infrastructure. Furthermore, in 2016 importance­ to SIX. In a constantly 38 SIX Annual Report 2016

and rapidly changing digital environ- cial services, are fundamental to ment, IT security must be able to the continuing success of SIX. The withstand attacks and security require- long-term innovation strategy intro- ments must be geared to the future. duced in 2015 also depends on an In order to be even better equipped ­internal cultural­ shift. In 2016, SIX for this challenge, SIX will be col­ therefore ran targeted management laborating with the Federal Institute workshops (“Leaders fostering inno- of Technology (ETH) in Zurich in vation culture”) in order to ­develop future.­ In 2016, SIX sealed a 12-year the leadership culture further. In addi- ­research cooperation agreement with tion to this, the SIX Group Academy the Zurich Information Security offers a broad range of ­internal train- Find out more about ZISC at and Privacy Center (ZISC) at ETH. ing and professional ­development zisc.ethz.ch SIX believes that the cooperation will opportu­nities for all employees. generate key momentum and enable it to gain important new knowledge Optimum performance – in an that will allow it to achieve and ­attractive, healthy working ­maintain the highest standards of environment infor­mation security. In addition to SIX provides a working environ- The collaboration pro­viding financial support,SIX has ment that offers perspectives and with ETH offers assigned employees to participate ­enables all employees to do their in research projects at ZISC. This not best. After all, the specialist knowl- SIX employees the only ensures that research findings edge and commitment of its employ- chance to under- are transferred directly into corporate ees provide the basis for the service take top-quality practice, it also means that SIX can quality, stability,­ and innovative offer its employees the chance to capacity­ of SIX. At the end of 2016, professional train- ­undertake top-quality professional SIX employed 1,304 women and ing and research training and research. 2,716 men of 53 different nationali- opportunities. Opportunities to use new tech­ ties. The proportion of part-time nologies, as well as innovative finan- ­employees is rising, and stood at

Corporate Responsibility Report: facts and figures about sustainability atSIX

SIX publishes a comprehensive range of facts and figures in its annual Corporate Responsibility Report, published in line with the guidelines of the Global Reporting Initiative (GRI G4, “core” category). In addition to giving further details of key topics allocated to two areas of action – “Stability and attractiveness of the ­finan­cial ­sector“ and ”Responsible employer” – identified in consultation with the stake­ holder­ groups, the CR Report also contains information about other topics and areas relating to sustainability. The CR Report 2016 from SIX will be published in summer 2017 and will then be available for download at six-group.com/responsibility Corporate responsibility 39

17.9 % across the Group. SIX is SIX is one of the six largest IT ­currently training 58 apprentices in ­employers in Switzerland, and enjoys Switzerland,­ 35 as IT specialists an excellent reputation on the and 23 as traders. Swiss employment market among A healthy working environment potential applicants. The results makes a key contribution to keeping of the Randstad Awards 2016 demon- work satisfaction and motivation strate this: Of the 150 largest com­ high. SIX has therefore systematized panies in Switzerland, SIX made the and expanded its health management greatest progress, jumping to 47th offering in recent years. In 2016, place. Among the Swiss IT employers, these efforts were rewarded with SIX was ranked fourth in the Rand- More about SIX as an employer, the Swiss Friendly Work Space® stad Awards 2016. along with current career opportuni- seal of quality. ties, at six-group.com/careers

More information available in the Corporate Responsibility Report 2016, which will be ­available from July 2017 at six-group.com/responsibility

Overview: sustainability principles at SIX

Ensuring stability Working for the good of society Ensuring the stability of the Swiss financial center and protecting the environment Ensuring the attractiveness of the financial center by Handling natural resources responsibly creating good general conditions Ensuring compliance with human and employee rights Participation in relevant associations and organizations Fostering corporate volunteering: participation Developing leading-edge services in social and environmental projects Swiss Finance Museum Responsible employer Being a fair and responsible top employer Promoting personal growth and development Respecting and protecting diversity and personal integrity Promoting employees’ health 40 SIX Annual Report 2016

Risk management at SIX: continuously being developed Effective and efficient risk management is a major element of the corporate management of SIX. A Group-wide framework defines the Group’s risk governance, organization, methods, and tolerance. In the 2016 financial year, SIX embedded the concept in the organization and continuously developed it further to ensure it would be able to react to internal and external challenges both flexibly and rapidly.

he risk appetite of SIX did Three lines of defense model not change significantly com- embedded further T pared with the previous year. Risk management at SIX follows Its ­ risk management concept moni- the “three lines of defense” principle, More on risk management can tors compliance with the defined which is now the standard model be found at six-group.com/risk thresholds, as well as how the com- throughout most of the financial pany’s risk profile changes over time. ­sector. This model provides a consis- In 2016, SIX further strengthened tent method for dealing with risks. the risk management team, which SIX ­implemented it in 2015 and devel­ is organized in a matrix structure. oped it further over the course of The functionally structured central the 2016 financial­ year, embedding team, led by the Chief Risk Officer it deeper within the organization. (CRO), deals with financial and non-­ The first line of defense is to be financial risks, Group-wide risk re- found in the business areas. At this porting, risk analysis, and the ­central level, employees need to recognize insurance portfolio. Risk management and weigh up risks appropriately teams in the business areas also­ in their day-to-day work, and report ­address the business-specific risks these accordingly. The risk manage- Risk manage- in each area and provide the CRO ment team used workshops to define ment promotes with functional reports. the specific risks of each business Across all business areas, special ­area more accurately, in close cooper- and supports attention is also paid to project risks. ation with the res­pective risk carriers. the responsible As part of the PM@SIX project man- The probability of occurrence, likely development of agement method, the organization is extent of any damage, and necessary­ focusing more closely on the efficient controls and ­measures were also innovations. and effective management of these ­reviewed. risks, particularly in relation to strate- The Group-wide risk management gic infrastructure projects. The goal organization forms the second line ­ is to ensure and support high-quality of defense. The central Risk Manage- project work, and to identify problem ment team defines and establishes areas at an early stage. the standards that are applied in all Risk report 41

business areas when dealing with ­inventory allows a realistic evaluation risks. The risk management teams in of the necessary reserves and the the business areas are responsible ­insurance cover. for ensuring that these are imple- Risk management at SIX also mented properly. They use a standard ­actively and responsibly supports Group-wide risk report format to the development of innovations. ­regularly report on the risks faced by In 2016, Risk Management conducted each business area in the course an intensive­ evaluation of blockchain, of its specific activity. The results are in particular, and actively monitored ­incorporated at the appropriate level blockchain-based solution The X-Chain for corporate in the report that the central Risk approach­es at SIX. actions is one example of Management team submits once a SIX will continue to ensure that a blockchain-based solution approach: page 33 quarter to the Group Executive Board, its risk management fully meets the Board of Directors and the inter- the demands of its business model nal and external auditors. and the challenges presented by The Board of Directors and the the economic environment, and to ­internal and external auditors are guarantee compliance with the regu- ­responsible for independently moni- latory requirements in Switzerland toring the risk management organiza- and abroad. SIX continues to build tion and the risks faced by SIX. T hey on the framework currently in place, form a third line of defense, in that and on the established, tried-and- they periodically check the efficiency tested measures. and effectiveness of risk manage- ment, and receive regular reports on the risk situation.

Group-wide risk inventory On the basis of the risks identified in the business areas (first line of ­defense), SIX aggregates all risks ­relevant to the organization in a central risk inventory. Thanks to a standard Group-wide approach to identifying, weighing, and managing risks, and on the basis of uniform control mech- anisms and reporting, the risk inven- tory gives a consistent overview of the company’s current risk situation. SIX can thus ensure professional monitoring of the risks and compli- ance with the limits defined for risk ­appetite. At the same time, the risk 42 SIX Annual Report 2016

Management structure and shareholders SIX Group Ltd (SIX) is an unlisted public limited company based in Zurich. SIX operates in four business areas via six divisions.

Shareholders and ­approval may be refused for signifi- equity ­structure cant reasons as mentioned in the Equity structure All former owners of the merger ­articles of association. A resolution of 31 December 2016: ­partners are represented among the by the general meeting, backed by shareholders. The shares are widely at least two-thirds of the represented Ordinary share capital distributed, i. e. no single owner votes and an absolute majority of CHF 19,521,905 or bank category has an absolute the par value of represented shares, Registered shares (par value CHF 1.00) ­majority. All shareholders are bound is ­required along with a statutory 19,521,905 by a shareholders’ agreement. quorum pursuant to Art. 704 para. 1 The total equity of SIX amounts CO in order to: Security number to CHF 19,521,905 and is divided into 3768228 19,521,905 registered shares with 1. ease or lift the transfer restriction a par value of CHF 1.00 each. Of this on registered shares amount, 607,864 (3.1 %) are owned 2. convert registered shares into by SIX (treasury shares). The transfer bearer shares of registered shares is restricted by 3. di ssolve the corporation through the articles of association. liquidation The transfer of shares must be 4. a mend this provision ­approved by the Board of Directors. Subject to Art. 685b para. 4 of the Swiss Code of Obligations (CO),

Ownership structure of SIX

in % 35 30 30.1 25 20 17.2 16.9 15 13.9 10 9.1 8.5 5 3.1 1.2 0

Others Big banks Regional and Regional Private banks Private Foreign banks Cantonal banks Treasury shares Commercial and Raiffeisen Raiffeisen banks ­ ­ investment banks Organization 43

Internal organization and competency rules As the company’s highest governing body, the Board of Directors is responsi- ble for supervising the Group Executive Board. The tasks and competencies of the Board of Directors and its committees and of the Group Executive Board as corporate bodies of SIX are defined in the articles of association, the rules of organization, and the competency rules.

asks of the Board of Directors The chair of the Board of Direc- are generally carried out by tors, or the chairs of the committees, T the committee responsible. set the agenda for meetings. Debates The Board of Directors has three and resolutions are recorded in the Members of the Board of committees: the Audit Committee, minutes. The minutes of the commit- Directors from page 46 onward. the Nomination & Compensation tees are sent to all members of the Committee, and the Risk Committee. Board of Directors. The committee Insofar as the committees are as- chairs also deliver a verbal report on signed discretionary powers by the important events and resolutions competency rules, the duties of the at every Board of Directors meeting. Board of Directors are limited to In the year under ­review, the Board ­supervision of the committees. of Directors ­convened on nine occa- The committees of the Board of sions, one ­of which was a one-day Directors accept reports pertaining strategy ­seminar. to their sphere of responsibility from the Group Executive Board and super­ Audit Committee (AC) vise the relevant operating business, The AC consists of three to four in particular with regard to compliance non-executive members of the Board with the articles of association, regula- of Directors. The activities of the AC tions, and directives. Meetings of the are stipulated by the law, the applica- Board of Directors and committees ble FINMA Circulars, the articles of generally last between two hours and association, the rules of organization half a day. The Chairman of the Board (including the competency rules), of Directors is invited to ­attend all and the regulations of the AC. committee meetings as a guest. The AC assumes tasks relating The Group CEO and Group in particular to accounting and finan- The organizational chart CFO are present at all meetings of cial reporting, the internal ­controlling for SIX can be found online at the Board of Directors. The chairs of system, the external a­ uditors, and six-group.com/organization the committees decide whether fur- the Internal Audit department. AC ther members of the Group Executive meetings are attended by the Group Board or other management staff CEO, the Group CFO, and represen­ are to be summoned, depending on tatives of the internal and external the agenda. If deemed necessary, ­auditors. Seven meetings were held representatives of the external audi- in the year under ­review. tors participate in the Board of Direc- tors’ discussion of their reports. 44 SIX Annual Report 2016

Nomination & Compensation and controlling tasks and executes Committee (NCC) the ­audit tasks assigned to it. It has The NCC consists of three to four an ­unrestricted right of audit within non-executive members of the SIX and all legal entities. It has the The composition of the Board of Directors. The activities of right to inspect all business docu- committees can be found at the NCC are stipulated by the law, ments at any time. Internal Audit co- six-group.com/board-of-directors the articles of association, the rules ordinates its a­ ctivities with the exter- of organization (including the compe- nal auditors and those responsible tency rules) and the regulations of for compliance and risk controlling. the NCC. The NCC prepares the ground- Information and supervisory work for all decisions on important tools regarding Group Executive personnel and related organizational Board issues at the Group Executive Board SIX has a fully developed manage- and senior management level for ment information system (MIS) that ­submission to the Board of Directors, supports the Board of Directors in including all issues pertaining to ­performing its supervisory duties and ­remuneration. NCC meetings are monitoring the powers assigned to ­attended by the Group CEO and the the Group Executive Board. A compre- Head Human Resources. Six meetings hensive interim statement containing were held in the year under ­review. budget and year-on-year comparisons is submitted each quarter to the Risk Committee (RC) Board of Directors. The RC consists of three to four The Chairman of the Board of non-executive members of the Board ­Directors receives the minutes of the of Directors. The activities of the Group Executive Board meetings RC are stipulated by the law, the arti- for inspection. cles of association, the rules of orga- nization (including the competency Risk management and compliance rules), and the regulations of the RC. The Board of Directors is informed The RC assumes the duties of about the risk situation on a regular Further information on risk the Board of Directors in respect of basis. The Group has an internal management at SIX from page 40 risk management in accordance ­control system (ICS) consisting of onward. with the risk policy of SIX. In addition, regulations, internal directives, and the RC has responsibilities r­elated to corresponding measures that serve the ­Securities Services business area. to ensure that business operations ­RC meetings are attended by the are conducted properly. Group CEO, the Group CFO, and the A corresponding compliance Group CRO. Six meetings were held ­program also ensures that statutory in the year under ­review. and regulatory requirements are met. The Risk Committee is informed Internal Audit about compliance activities on a Internal Audit reports directly to ­yearly basis. the Audit Committee in functional terms and the Chairman of the Board Remuneration of D­ irectors in administrative terms. At the request of the Nomination & It supports the Board of Directors Compensation Committee, the Board in ­carrying out its legal supervisory of Directors defines remuneration Organization 45

guidelines. The Chairman and mem- vising and controlling the external bers of the Board of Directors receive ­auditors and Group Auditors. It also a fixed salary. The members of the handles the internal and external Group Executive Board receive a ­auditors’ ­reports, and is supported in fixed basic salary as well as a variable this task by the Audit Committee remuneration in the form of a cash (AC). The AC regularly receives and payment. The latter is dependent processes ­reports from representa- on company revenue, targets met tives of the external auditors or ­according to the Balanced Scorecard, Group Auditors. and individual performance. In order to gear corporate governance to Remuneration of the auditors ­longer-term objectives and make it more sustainable, part of the variable in CHF 2016 remuneration of Group Executive Auditing services 2,437,700 Board members takes the form of a Audit-related services 341,438 long-term incentive plan, which pays Advisory services 507,329 out after three years (cliff vesting), provided that the predefined quanti- Information policy tative and qualitative objectives have Up-to-date information is available been met. This ensures that the inter- at six-group.com. Calls to attend ests of the owners and the Group meetings and communications to ­Executive Board are aligned over an the shareholders are sent by letter to extended period. the addresses recorded in the share In the year under ­review, seven register. Subject to legal require- members of the Group Executive ments, announcements to creditors Board and eleven members of the are published in the “Swiss Official Board of ­Directors were paid a total Gazette of Commerce”. SIX publishes of CHF 13.32 million. This ­includes its business results semiannually. members of the Board of ­Directors who ­either left or joined during the course of the financial year. Along with the basic and variable remuner­ ation, the amount also covers pay- ments or benefits in kind that are standard in the industry. Social bene- fits are not included in the amount. SIX does not grant loans of any kind to its employees or ­cor­porate bodies.

Auditors Ernst & Young Ltd was appointed as auditor of SIX Group Ltd on 1 January The Annual Report is available 2008. The auditor in charge is Jan in German and English, Marxfeld, accredited audit expert. and can be ordered online at Rolf Walker, accredited audit expert, six-group.com/annual-report assumes the role of lead auditor The financial report is also recognized­ by FINMA. The Board of ­published in English online at Directors is responsible for super­ six-group.com/annual-report 46 SIX Annual Report 2016

Board of Directors

Dr. Romeo Lacher, Chairman (1960) and was appointed to the Group On 10 January 2017, the A Swiss citizen and member of the ­Executive Board of UBS Group AG Board ­of Directors of SIX elected Board of Directors since 1 January and UBS AG in January 2016. Dr. Romeo Lacher as the new ­Chairman of the Board of Directors. 2008, he took over the chairmanship He succeeds Alexandre Zeller, of the Board on 10 January 2017, Dr. Jürg Bühlmann (1967) who stepped down as Chairman ­having already chaired the Board A Swiss citizen and member of the at the end of September 2016. on an interim basis since 1 October Board since 20 May 2016, elected ­Romeo Lacher has been chairing 2016. After receiving his graduate ­until 2017. After receiving his graduate the Board of Directors on an interim basis since 1 October 2016. ­degree and PhD from the University degree in Business Administration of St. Gallen, he completed the and his PhD at the University of Zurich, ­Advanced Management Program he completed the Executive Program at Harvard Business School in Boston. of the Graduate School of Business Since 1990 he has held various at Stanford University, and the Senior ­management roles at Credit Suisse, Executive Programme of the London and was member of the Private Business School. Jürg Bühlmann has ­Banking Management Committee worked for Zürcher Kantonalbank from 2004 to 2015. He was Global since 1994. He held various executive Head of Private Banking Operations positions in Controlling in the Execu- from 2004 to 2011; Head Private tive Board unit and was a Member Banking Western Europe from 2012 of Management from 1998 onward. to 2014; Head Private­ Banking EMEA In 2002, he took charge of Logistics from 2014 to 2015, and Chief Operat- IT as Head of Application Engineer- ing Officer of the International Wealth ing. From 2004, he assumed respon- Management Division and member sibility for project management, of the IWM Management Committee IT projects and their development from 2016. At the end of February (Change the Bank). In 2011, he be- 2017 Romeo Lacher stepped down came Head of Real Estate, and since from all his roles and resigned from 2012 he has been Head of Logistics Credit Suisse. and a member of the Executive Board.

Dr. Sabine Keller-Busse, Dr. Patrik Gisel (1962) Vice Chairman (1965) A Swiss citizen and member of the A Swiss and German citizen and Board of Directors since 16 May 2014, member of the Board since 18 June elected until 2017. He completed 2012, elected until 2017. She com- both his graduate degree in Business pleted her Master’s degree in Busi- Management and his PhD at the Uni- ness Administration and her PhD versity of St. Gallen. After stints at at the University of St. Gallen. From Swiss Bank Corporation (1987–1993), 1995 to 2008 Sabine Keller-Busse Boston Consulting Group (1993–1994) worked for McKinsey & Company, and Union Bank of Switzerland/UBS where she served as a senior partner AG (1994–1999), in 2000 Patrik Gisel from 2001. She then spent two years became Head of the Corporate Devel- heading up Private Clients at Credit opment, Finance and IT Department Suisse for the Zurich region. In 2010 of Raiffeisen Switzerland Coopera- she joined UBS and was Chief Oper- tive, St. Gallen. From 2002 to 2015 he ating Officer UBS Switzerland until was Vice Chairman of the Executive 2014. She has been Group Head Board and from 2005 to 2015 Market ­Human Resources since August 2014 Department Head. Patrik Gisel took Board of Directors 47

the helm as CEO of Raiffeisen Switzer­ Ltd., and then from 2002 CEO of land in October 2015. ­Jyske Bank (Switzerland) AG in Zurich for five years. Søren Mose wasCEO Lorenz von Habsburg of Saxo Bank (Switzerland) AG, Zolli­ Lothringen (1955) kon, from 2007 to November 2014. A Belgian and Austrian citizen and member of the Board of Directors Herbert J. Scheidt (1951) since 16 May 2014, elected until 2017. A German and Swiss citizen and Lorenz von Habsburg Lothringen member of the Board since 1 January ­studied Business Management at the 2008, elected until 2017. Herbert University of St. Gallen and the Uni- J. Scheidt studied Economics at the versity of Innsbruck (Austria). He has University of Sussex and holds an been a Director of E. Gutzwiller & Cie MBA from the University of New Banquiers, Basel, since 1987 and a York. He held a range of management General Partner with unlimited liability positions at Deutsche Bank in Frank- since 1990. furt, Essen, New York, and Milan. In 1996 he moved to Deutsche Bank Stefan Helfenstein (1966) (Suisse) in Geneva: as Head of Private A Swiss citizen and member of the Banking Europe and Middle East he Board since 20 May 2016, elected served as Deputy CEO; he later headed ­until 2017. He has a graduate degree up International Private Banking in Business Management from the in Geneva, became a member of the University of St. Gallen and com­ Group Executive Committee, Wealth pleted the Programme for Executive Management, in Frankfurt, and in ­Development at the International In- 2001 was appointed CEO in Geneva. stitute for Management Development He moved to Vontobel Group as (IMD) in Lausanne. Following various CEO in 2002. Since May 2011 he has positions in audit and controlling been Chairman of the Board of in the food industry, in 2003 Stefan Directors of Bank Vontobel AG and Helfenstein moved to Nestlé Taiwan Vontobel Holding AG, Zurich. as Finance Controller of Shanghai Fuller Foods Co, China. From 2005 he Dr. Shannon Thyme Klinger (1971) In May 2016, the general spent another three years at Nestlé A US citizen and member of the ­meeting of shareholders of SIX China before becoming Head of Board since 20 May 2016, elected elected Dr. Shannon Thyme Klinger, Dr. Jürg Bühlmann, and Stefan ­Finance and Control (CFO) of Nestlé ­until 2017. After completing a B.A. Helfenstein as new members of the Greater China Region in 2008. He has in Psychology at the University of Board of Directors. They replace been Head of Group Accounting ­Notre Dame (USA), she obtained Dr. Barbara Kessler, Hermann Wirz, and Reporting at Nestlé AG Switzer- a doctorate in law at the University and Dr. Philipp Halbherr, who did land since 2013. of North Carolina at Chapel Hill. In not stand for re-election. 1996 she joined Alston & Bird LLP as Søren Mose (1964) an associate,­ and later as a partner. A Danish citizen and member of the In 2005 she changed sectors, becom- Board since 19 May 2014, elected ing Vice President, Marketing Com­ ­until 2017. He holds an MBA from pliance and Associate Counsel at Barr Henley Management College (England) Laboratories/Duramed Pharmaceuti- and H. D. Aarhus Business University cals; Senior Vice President, General (Denmark). At Jyske Bank, Denmark, Counsel NAFTA at Solvay Pharma- Søren Mose first worked as a trader ceuticals and General Counsel North and investment advisor, before rising America at Sandoz Inc. She moved to become director of the HNWI to Germany in 2012 as Global Legal (High-Net-Worth Individuals) depart- Head and General Counsel for Sandoz ment in 1988. From 1992 to 2002 he International GmbH. Since 1 May 2016 Further activities and mandates of the members of the Board of Directors was Head of Private Banking, Deputy she has been Chief Ethics and Com- and details of the composition of CEO and member of the Board of pliance Officer and Head of Litigation the committees can be found at ­Directors of Jyske Bank (Gibraltar) at Novartis International AG in Basel. six-group.com/board-of-directors 48 SIX Annual Report 2016

Group Executive Board

Dr. Urs Rüegsegger (1962) of Deputy Division CEO since 2012. Urs Rüegsegger, a Swiss citizen, After graduating with a Type B has been Group CEO since the be­ Matura in Zurich in 1978, Christoph ginning of 2008. Prior to this he held Landis continued his studies in the position of Head of the Executive the fields of human medicine, infor­ Committee of St. Galler Kantonal­ mation technology, and economics. bank. He joined the bank in 1993 as Head of Controlling, Accounting Thomas Zeeb (1964) and Risk Management and was Thomas Zeeb, a Canadian citizen, appointed to the Executive Commit­ has been Division CEO Securities tee in 1997. In 2000 he took charge ­Services since 2008. He previously of the IPO, which was successfully worked at Clearstream Banking in launched in 2001. As Head of London and Luxembourg. As Execu­ the ­Executive Committee­ he also held tive Director of Client Relations, he various positions with the Association was part of the company’s Executive of Swiss Cantonal Banks beginning Management and a member of the in 2001. After completing a degree Board of Directors of Clearstream in business studies at the University Banking Frankfurt. In charge of sales, of St. Gallen, Urs Rüegsegger started relationship management and client his ­career at Swiss Re in the IT services, Thomas Zeeb was respon­ department. He was deeply involved sible for the development of the Euro­ in the development of commercial pean and US business. He previously applications and the restructuring of held positions in companies such as Swiss Re’s service branch, and Bank of New York in London, Sim & Fed most recently assumed financial SpA in Florence and Deutsche Bank respon­sibility for Audatex, its interna­ AG in Frankfurt. Over the course of tional ­subsidiary group. his career, Thomas Zeeb has gained a wealth of experience in the post-­ Christoph Landis (1959) trading sector. Christoph Landis, a Swiss citizen, has been Division CEO Swiss Ex­ Robert Jeanbart (1956) change since 12 November 2015. He Robert Jeanbart, a Swiss citizen, had previously managed the busi­ has been Division CEO Financial ness area on an interim basis since ­Information since May 2014. He has May 2015. Christoph Landis has been many years of international manage­ at SIX Swiss Exchange since 1992. ment experience and proven expertise He was Deputy Director of Informa­ in various areas of the financial in­ tion Technology from 1999, with a formation business. Most recently major focus on developmental and he was Global Head of Market Data external IT projects. He was appoint­ and Information Services at SunGard. ed to the Management Committee He was formerly CEO of Infotec S.A. of Swiss Exchange as CIO in 2003. and worked for 15 years in a number He has been responsible for Opera­ of managerial positions at Reuters tions since 2010, in the capacity Ltd., most recently as Managing Group Executive Board 49

­Director for UK & Ireland. He studied ­Officer at Swiss International Air electrical engineering­ at EPFL Lines. From 1998 to 2001 he was a ­Lausanne and holds a Master of member of the Management Com­ Sciences­ degree. mittee of Swisscargo AG and Cargo­ logic AG, before which he was based Jürg Weber (1961) in Sweden and Hungary as Managing Jürg Weber, a Swiss citizen, has Director of Swissair AG from 1993 been Division CEO Payment Services to 1998. While studying for his Mas­ since 1 September 2015. Founder ters of Science­ in IT and business and owner of Golden Horn Manage­ ­administration at the University of ment Ltd. in Istanbul and Kiev, where ­Zurich, Robert Bornträger worked as he worked from 2000 to 2005. Prior a programmer and analyst at Eldag to that, he was CEO of Benkar A.Ş. Informatik AG. In 1986 he transferred ­within Boyner Holding, based in to Swissair’s IT unit, where he ­Turkey, from 1997 to 2001 and Con­ worked as a consultant, instructor sultant and Partner at McKinsey & Co and software engineer. from 1992 to 1997, where he was ­responsible for establishing a Dr. Stefan Mäder (1963) At the end of February 2017, ­McKinsey office in Turkey. In his Stefan Mäder, a Swiss citizen, has Dr. Stefan Mäder stepped down ­former roles as CEO, he successfully been Group CFO since December as Chief Financial Officer (CFO) of his own volition, leaving SIX after launched new credit cards, set up 2010. He joined SIX from Zurich six successful years. The Board ­innovative credit card programs and ­Financial Services, where he had of Directors has appointed Daniel established an efficient organizational worked as CFO of Europe General Schmucki to the Group Executive structure for credit cards within a ­Insurance since 2007. From 2004 to Board as the new CFO. He took up bank. He holds an MBA, with a major 2007, in his role as CFO of the insurer his role on 1 March 2017. in finance and strategic management, Zurich Switzerland, he headed up from the Wharton School, University the Finances and Services division. of Pennsylvania (USA). Prior to that, he had held various management positions in the invest­ Robert Bornträger (1960) ment arm of Zurich Financial Services, Robert Bornträger, a Swiss citizen, where he began working in 1996. has been responsible for the develop­ Stefan Mäder studied economics ment and operation of the entire IT at the ­University of Zurich and was infrastructure since 2008. Since April awarded a doctorate in 1992. He then 2014, he has been CEO of Division continued his specialist training as Global IT, which covers all IT aspects an economist and analyst with the at SIX around the world. From 2005 Swiss ­National Bank. until the end of 2007, he was CEO of Telekurs Services Ltd. and a member of the Management Committee of Telekurs Group. Prior to this, he was

Managing Director of Integralis Further activities and mandates at ­Schweiz AG for a brief period and six-group.com/group-executive- ­subsequently Chief Information board 50 SIX Annual Report 2016

2

1

3

1 Dr. Urs Rüegsegger 2 Robert Bornträger (l.) and Dr. Stefan Mäder (r.) 3 Robert Jeanbart (l.) and Thomas Zeeb (r.) 4 Jürg Weber 5 Christoph Landis 6 Thomas Zeeb (l.) and Robert Jeanbart (r.) Group Executive Board 51

5

6

4 52 SIX Annual Report 2016

Consolidated balance sheet

in CHF million 31/12/2016 31/12/2015

Assets Cash and cash equivalents 4,921.2 4,208.4 Trade and other receivables 213.6 409.2 Receivables from clearing & settlement 3,326.4 2,660.1 Financial assets 688.2 758.1 Inventories 12.0 11.2 Current income tax receivables 13.4 2.0 Other current assets 112.8 61.0 Disposal groups and assets held for sale 317.9 21.4 Current assets 9,605.4 8,131.4 Property, plant and equipment 255.2 233.3 Intangible assets 167.3 181.9 Investments in associates 40.8 20.7 Financial assets 184.7 151.3 Other non-current assets 9.3 17.7 Deferred tax assets 16.9 19.4 Non-current assets 674.1 624.4 Total assets 10,279.5 8,755.8

Liabilities Bank overdrafts 0.1 0.0 Trade and other payables 190.4 139.6 Payables from clearing & settlement 6,986.0 5,622.4 Financial liabilities 56.7 66.1 Provisions 29.5 15.2 Current income tax payables 31.2 35.4 Other current liabilities 217.0 241.7 Liabilities directly associated with disposal groups held for sale 83.6 10.6 Current liabilities 7,594.6 6,131.0 Provisions 38.5 23.4 Other non-current liabilities 52.1 117.2 Deferred tax liabilities 39.8 38.9 Non-current liabilities 130.4 179.6 Total liabilities 7,725.1 6,310.6

Equity Share capital 19.5 19.5 Capital reserves 234.1 234.1 Other reserves –51.7 –47.7 Retained earnings 2,342.8 2,229.8 Shareholders’ equity 2,544.8 2,435.7 Non-controlling interests 9.7 9.5 Total equity 2,554.4 2,445.3 Total liabilities and equity 10,279.5 8,755.8 Annual Financial Statements 53

Consolidated income statement

in CHF million 2016 2015

Commission revenues 694.3 709.5 Transaction revenues 394.1 406.9 Service revenues 627.7 615.5 Net interest income from banking business 15.1 11.9 Other operating income 107.4 67.0 Total operating income 1,838.6 1,810.9 Personnel expenses –628.4 –606.1 Other operating expenses –838.8 –843.4 Depreciation, amortization and impairment –84.3 –82.3 Total operating expenses –1,551.5 –1,531.9 Operating profit 287.1 279.0 Share of profit of associates –0.3 15.5 Financial income 23.9 556.5 Financial expenses –13.6 –88.1 Earnings before interest and tax (EBIT) 297.1 762.9 Interest income 5.1 7.9 Interest expenses –7.5 –7.5 Earnings before tax (EBT) 294.7 763.3 Income tax expenses –73.6 –49.6 Group net profit 221.1 713.7 of which attributable to shareholders of SIX Group Ltd 220.5 711.7 of which attributable to non-controlling interests 0.5 2.0

Earnings per share (CHF) Basic profit for the year attributable to shareholders of SIX Group Ltd 11.66 37.63 Diluted profit for the year attributable to shareholders of SIX Group Ltd 11.66 37.63 54 SIX Annual Report 2016

Addresses & contacts

SIX Group Ltd Head office Contacts business areas

until 1/ 7/2017: SIX Swiss Exchange Ltd Selnaustrasse 30 T +41 58 399 5454 P. O. Box six-swiss-exchange.com 8021 Zurich, Switzerland T +41 58 399 2111 SIX Securities Services Ltd six-group.com T +41 58 399 3111 six-securities-services.com off 1/ 7/ 2017: SIX Financial Information Ltd Pfingstweidstrasse 110 T +41 58 399 5111 P. O. Box six-financial-information.com 8021 Zurich, Switzerland T +41 58 399 2111 SIX Payment Services Ltd Additional addresses and six-group.com locations can be found under T +41 58 399 9111 “Contact” on the specified six-payment-services.com home page. Produced by SIX Group Ltd, Zurich

Editorial and production management SIX Management Ltd, Corporate Communications,­ Zurich

Concept, layout and design C3 Creative Code and Content (Switzerland) AG

Translations CLS Communication AG, Zurich Glattbrugg

Proofreading Text Control AG, Zurich

Photography Nils Sandmeier (pages 6, 23, 26, 29, 33, 50–51) Milan Rohrer (pages 30–32)

Printing Neidhart + Schön AG, Zurich

Paper Planojet, Heaven 42

© SIX Group Ltd, Zurich 04 / 2017 Business model Business

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Annual Report 2016