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Switzerland

In July 2002 the pan-European exchange virt-x announced the introduction of a central counterparty (CCP) for spring 2003. With the interposition of the CCP between the parties trading on virt-x, clearing as a new element will be introduced after the trading (buying and selling of securities) and before the settlement (delivery and payment of securities in fulfilment of the contractual obligations resulting from trading).

Trades executed anonymously on virt-x will be subject to an open offer by the CCP. With the matching on the order book the CCP becomes the buyer to every seller and the seller to every buyer. At no stage will there be a bilateral contract between the parties whose order matched on virt-x.

Two central counterparties, the London Clearing House (LCH) and x-clear will provide clearing services. The LCH is domiciled in London and recognized as a clearing house under the UK Financial Services and Markets Act 2000. The Swiss Clearing House, x-clear, is domiciled in Zurich, will have no physical presence in the UK and will be a bank established under Swiss law, supervised by the Swiss Federal Banking Commission.

Each virt-x member will choose which CCP it will use. The Swiss clearing house x-clear will act in a CCP role (where both trading virt-x members are members of x-clear) or act as a clearing member of LCH (where one trading virt-x member is a member of the LCH, while the other trading virt-x member is a member of x-clear). The clearing house x-clear will function as a turning point regarding the applicable law: contracts between x-clear and its members arising from trades on virt-x will be subject to Swiss law and the rules of x-clear, while English law will apply to the agreements between the LCH and x-clear. It therefore serves as a Swiss law governed portal to clearing services for virt-x members.

Martin Hess

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