01
Key points at a glance
- Commercial short-term proprietary trading in securities may require a FINMA securities firm licence. The volume-based trigger applies where the relevant aggregate trading volume in Switzerland exceeds CHF 5 billion per calendar year.
- Direct participation in a trading venue and operating an organised trading facility are additional licensing triggers. The underlying conditions and statutory exemptions must still be assessed.
- Gross trading volume is relevant. In its 2014 judgment, the Federal Administrative Court rejected the arguments of pure intermediation and absence of market risk on the facts before it.
- Trading without a licence can lead to liquidation, bankruptcy and high costs. In the case decided by the court, the investigation alone cost around CHF 238,000.
02
Who qualifies as a proprietary trader?
Proprietary trading means trading for one’s own account. Classification as a securities firm under Article 41(b) FinIA additionally requires commercial short-term securities trading, principal activity in the financial market and one of three further triggers. Securities include, in particular, standardised shares, bonds and certain derivatives suitable for mass trading.
A pure proprietary trader does not invest client money on behalf of clients. The volume-based licensing requirement therefore focuses on the functioning of financial markets. The judgment discussed here was issued under the former Stock Exchange Act; FinIA and FinIO apply today. Its reasoning must be considered in the current statutory context.
Examples may include prop trading firms and companies trading bonds short-term. Labels such as trading company or family office do not determine regulatory status; actual activities and any statutory exemptions require separate assessment.
03
When does a proprietary trader need a licence?
Where the underlying conditions of commercial short-term proprietary trading and principal activity in financial markets are met, Article 41(b) FinIA lists three alternative additional triggers:
1. Volume-based market risk
Relevant aggregate securities trading volume in Switzerland exceeds CHF 5 billion per calendar year (Article 65(4) FinIO).
2. Trading venue membership
Admission as a direct participant in a trading venue; this trigger has no minimum volume requirement (Article 65(5) FinIO).
3. Organised trading facility
Operating an organised trading facility within Article 41(b)(3) FinIA; this trigger likewise does not depend on that volume threshold.
Remaining below the volume threshold is not sufficient by itself to establish exemption. Direct trading venue participation, relevant operation of an organised trading facility and other regulated activities such as market making must also be considered. The volume threshold is now set out in Article 65(4) FinIO; former FINMA Circular 2008/5 is no longer the applicable legal basis.
04
Which trades count towards the CHF 5 billion threshold?
In its judgment B-5051/2012 and B-3142/2012 of 10 April 2014, the Federal Administrative Court assessed gross trading volume under the law then in force. It treated the threshold as a quantitative criterion and rejected the deductions sought in that particular case.
The company concerned tried to reduce its volume. It argued that purchases and sales were matched within minutes, that it only “intermediated” and bore no market risk, and that the trades concerned foreign government bonds. On its calculation, out of CHF 5.69 billion only around CHF 1.2 million remained. The court rejected this:
FinIO now refers to the relevant aggregate volume per calendar year in Switzerland. The foreign origin of a security does not, by itself, justify excluding it. Cross-border businesses should document execution, booking and geographical attribution, and clarify uncertain cases with FINMA in advance.
- Whether an individual trade carries market risk is irrelevant.
- Trades via electronic platforms count in full, even where the platform is the counterparty on both sides.
- The nationality of the securities is irrelevant. Foreign securities also show trading capacity.
05
What happens if you trade without a licence?
FINMA may order an unauthorised business to cease its activities and take other supervisory measures. Liquidation or bankruptcy requires the relevant statutory conditions and is not an automatic consequence of every threshold breach. In the historical case discussed, refusal of authorisation was followed by liquidation and later bankruptcy. Recorded volumes were approximately CHF 18.5 billion in 2010 and CHF 15.9 billion in 2011. The measures and costs included:
The case illustrates that submitting an application does not replace a licence. The company had applied in 2010 and continued trading. An auditor’s failure to raise an objection does not remove the firm’s responsibility to assess its regulatory status. Unauthorised activity may also constitute an offence under Article 44 FINMASA.
- immediate cessation of business,
- appointment of investigating agents and liquidators,
- liquidation and later bankruptcy of the company,
- Investigation costs of CHF 238,050.30 and FINMA procedural costs of CHF 25,000 for each affected company, as set out in the decision reproduced in the judgment.
06
What does FINMA require from a proprietary trader?
A proprietary trader mainly needs capital, a proper organisation and fit and proper people. The key requirements:
Pure proprietary traders benefit from certain organisational simplifications compared with client dealers and market makers. The specific requirements for a separate supervisory body and independent internal audit in Articles 66(3) and 68(4) FinIO apply to those latter categories. Risk management, internal controls and compliance remain necessary, and FINMA may impose stricter requirements in justified cases. Non-account-holding securities firms generally follow the simplified capital regime in Article 70 FinIO.
- Minimum capital of CHF 1.5 million, fully paid up (Art. 69 FinIO).
- For securities firms that do not maintain client accounts, own funds generally equal to at least one quarter of the fixed costs in the latest annual accounts; the resulting requirement is capped at CHF 20 million (Article 70 FinIO). This is not a cap on own funds actually held. Minimum capital must also be maintained.
- Liquidity must be sufficient at all times (Art. 71 FinIO).
- Quarterly capital adequacy reporting to FINMA, half-yearly on a consolidated basis (Art. 23 FINMA-FinIO).
- Executive management generally comprising at least two people. A person authorised to represent the firm and resident in Switzerland must belong to executive management or the body responsible for ultimate management, supervision and control (Article 66 FinIO).
- Guarantee of irreproachable business conduct by the governing bodies.
07
Frequently asked questions
Do I need a licence as a private individual trading my own money?
Ordinary investment of private assets is generally not commercial securities firm activity. If short-term securities trading is organised as a business, all underlying conditions, additional triggers and exemptions must be assessed. The CHF 5 billion threshold is not the only test.
Does turnover or profit count?
Gross volume counts, meaning the sum of all purchases and sales at the prices paid. Profit or net positions are irrelevant.
Can I exclude trades made via a foreign platform?
Not simply because the platform or securities are foreign. The 2014 judgment rejected such deductions on its facts. Geographical attribution under today’s FinIO must be assessed against the actual trading structure.
What applies if I want to become a member of SIX Swiss Exchange?
For a proprietary trader within Article 41(b) FinIA, direct trading venue participation generally triggers licensing regardless of volume. Existing licences, statutory exemptions and special rules for foreign participants require separate assessment.
How long does the licensing process take?
Timing depends on the completeness, quality and complexity of the application; there is no guaranteed fixed period. Allow sufficient preparation time and start regulated activity only after the required licence has been granted.
08
What should you do now?
Monitor relevant trading volume continuously and document its calculation. Clarify regulatory status before obtaining direct trading venue access or establishing an organised trading facility. Prepare the organisation, capital and application early. If a licensing requirement may already have arisen, promptly obtain legal advice on the activity and next steps.
09
Related reading and advice
For related regulatory questions, see Swiss crypto regulation and token classification and crypto asset management and licensing. To discuss your trading model, contact Martin Liebi.
Primary sources