SWX Group %

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1 SWX Group Annual Report KEY FIGURES SWX Group % Revenue* Profit* Cash flow* Total assets* Equity* Staff numbers * in CHF SWX Swiss Exchange and virt-x % Exchange trading turnover (in CHF m) Number of transactions Number of listed securities SPI market capitalization (in CHF m) Subsidiaries % SWX Swiss Exchange (in CHF 1 000) Revenue Profit virt-x (in 1 000) Revenue Profit Eurex (in 1 000) Revenue Profit before operating expenses EXFEED (in CHF 1 000) Revenue Profit ABACUS Wertpapier Handelsgesellschaft mbh, Cologne; ABN AMRO Bank N.V. Amsterdam, Zurich Branch, Zurich; ABN AMRO Bank N.V., London Branch, London; AIG Privat Bank AG, Zurich;

2 Building Decoration At the heart of a network When the new stock exchange building in Zurich was under construction (from 1987 to 1992), a building decoration competition was advertised. The twin project entitled Ordnung (Order) I and Ordnung II (1992) submitted by the Aargau artists Max Matter (b. 1941) and Ernst Häusermann (b. 1947) illustrates the latest Annual Report of the SWX Group. The two works, which form a conceptual whole, were inspired by a single idea. The stock exchange building in Zurich localizes a point on the earth s surface, while stock market activities are part of an interconnected network spanning the entire world. Global and local are partners in dialogue. Ordnung II (cover picture) This work covers three parts of the front of the building. Three panels of partly roughened Kösseine granite, each 4 x 25 metres (13 x 82 ft.) in size, depict maps of London, New York and Tokyo, with the exchange buildings at the upper end of the panels. Looking upwards from a position directly in front of the façade, the observer sees the map sections in the correct proportions despite the foreshortening, whereas when they are viewed from further away they simply look like a light-and-dark pattern extending upwards and having nothing to do with a street plan. A literal interpretation of this conceptional background would be that from a distance the overview lacks clarity, while from close up one sees things in their right perspective. Banca del Gottardo, Lugano; Bank at Bellevue, Kuesnacht; BANK CIAL (SWITZERLAND), Basle; Bank; Hofmann Ltd., Zurich; Bank Julius Baer & Co. Ltd., Zurich; Bank Leu Ltd., Zurich;

3 Contents 05 Editorial 6 SWX Group Built on solid foundations 12 Comprehensive service offering underpins 13 strong global presence Linchpin of the Swiss financial centre 13 SWX Group as an employer 14 Further refinement of Group structure 15 Core business Two exchanges one management 18 Two independent exchanges in different 19 regulatory environments Swiss Value Chain further expansion and networking 19 Market review 21 High potential in warrant market 21 Transparency in the Fund Market from project to product 22 ETFs increasingly sought after in Europe 23 Professional training for securities traders 23 Technology a core competence 24 Access types 26 Reports from individual companies SWX emphasizing diversity 30 virt-x well positioned internationally 35 EXFEED unflagging demand for realtime data 37 Eurex an ever-expanding universe 40 STOXX leading European index provider 44 Annual financial statements of the SWX Group 47 Annexe 77 Glossary 96 Bank Sal. Oppenheim jr. & Co. (Switzerland) Ltd., Zurich; Bank Sarasin & Co. Ltd., Zurich; Bank von Ernst & Cie. AG, Zurich; Bank Vontobel AG, Zurich; Banque Bonhôte & Cie SA,

4 Editorial The integration of virt-x and the extension of the Eurex cooperation agreement have enabled the SWX Group to further strengthen its position in the European securities industry. Reto Francioni, Chairman of the Board of Directors Neuchâtel;Banque Cantonale de Genève, Geneva; Banque Cantonale Vaudoise, Lausanne; Banque de Dépots et de Gestion, Lausanne; Banque Edouard Constant SA, Geneva; Banque

5 SWX Group Annual Report Despite the difficult environment, 2003 was a successful year for the SWX Group in strategic and operational terms. The rapid integration of virt-x and the extension of the Eurex cooperation agreement by another ten years enabled us to further strengthen our position in the European securities industry. The London-based virt-x exchange not only put an end to the migration of trading activities in SMI stocks from the Swiss financial centre, but also laid the foundations for pan-european trading in non-smi stocks. In the year under review, the SWX Group and Deutsche Börse mapped out the way forward for internationalization across the Atlantic by gaining a foothold in the hotly contested US market through Eurex. Against a background of everfiercer competition among financial markets, the regulatory framework is fast becoming key to a successful strategy. An adaptable and internationally comparable system of rules and regulations increases the liquidity, transparency and efficiency and hence the competitiveness of a financial centre. The regulatory measures put in place by the SWX Swiss Exchange are based on the principle as much as necessary, as little as possible. In an environment marked by an uneasy relationship between official market supervision and self-regulation, SWX has to ensure that its rules are adequate. Thanks to the self-regulation concept embodied in the Stock Exchange Act, it is well placed to help secure the competitiveness of the Swiss financial centre on a lasting basis. Our Corporate Governance Directive, which was tested in practice for the first time last year, and the disclosure requirements for management transactions, are examples of this flexible and market-oriented approach to self-regulation. Vested as it is with powers to regulate, supervise and impose sanctions, the SWX Swiss Exchange makes a significant contribution to the efficiency and transparency of securities markets and the equal treatment of market participants. the introduction of productivity-enhancing technologies, the SWX Group not only increases the efficiency of participants but also ensures that the Swiss financial centre has the long-term capability of close interlinkage with international financial markets. Our marketplace, and the Swiss economy as a whole, thus have a stable, reliable and powerful organization at their disposal. The SWX Group is positioned to play a crucial role in driving the internationalization of European securities exchanges. As the consolidation process in Europe s financial markets continues, there is a growing trend towards bloc formation among the continent s bourses. With its sound financial and technological base, the Group is an attractive cooperation partner. However, possible cooperative ventures or partnerships will only be envisaged if the Swiss financial centre is further strengthened by cost reductions and efficiency improvements. All initiatives must therefore be measured against the criterion of their usefulness for the financial centre and for customers of the Group, which will analyse future developments from a position of strength and maintain its room for manoeuvre. We would like to take this opportunity to thank all our employees for their professionalism and hard work. They are the backbone of the SWX Group. Their service-oriented approach and their expertise guarantee our continued success in the interest of the Swiss financial centre. Within the Swiss Value Chain, the SWX Group provides unsurpassed technological expertise for securities and derivatives markets with its electronic trading platforms, including numerous clearing and settlement options. It is a strategic success factor and a central component of this value-added chain. Thanks to its higher-capacity platforms, more flexible and modular trading systems and Reto Francioni Piguet & Cie SA, Yverdon-les-Bains; Banque Privée Edmond de Rothschild SA, Geneva; Banque SCS Alliance SA, Zurich; Barclays Bank Plc, London; Basler Kantonalbank, Basle; Bay-

6 SWX Group Executive Committee erische Hypo- und Vereinsbank AG, Munich; BNP Paribas Private Bank (Switzerland) SA, Geneva; BSI SA, Lugano; BZ Bank Ltd., Wilen; Cantor Fitzgerald International, London; Citi-

7 SWX Group Annual Report From Ordnung I to the Umundum stone circle Ordnung I was a floor made up of inlaid stones. Until the 2002/2003 redevelopment, the Forum (the first basement level) was accessible to the public. Two paths crossed at right angles here. Extending these paths round the globe produced two imaginary circles which intersected south-east of New Zealand. Each country that these circles passed through was represented in the Forum floor inlay by genuine stone typical of the country. Thus passers-by walked over the many different kinds of stone found on our planet. The redevelopment meant that this inlaid floor had to be sacrificed to make way for an open-plan office. Now, at the very same place where the lines crossed in the old stock exchange building, stands the Umundum ( round and round ) stone circle, made up of the same stones set in layers. The powerful concept enabled the artwork to survive the demolition of summer The stone circle perpetuates the original idea and reminds us a little of the trading rings at the old, pre-electronic stock exchange. SWX Group Executive Committee with Chairman of the Board of Directors from left to right Heinrich Henckel CEO SWX Swiss Exchange Jürg Spillmann Head of the Group Executive Committee Reto Francioni Chairman of the Board of Directors Peter Keller CEO virt-x group Global Markets Deutschland AG & Co. KGaA, Frankfurt; Commerzbank AG<br>London Branch, London; Cornèr Banca SA, Lugano; Coutts Bank (Switzerland) Ltd., Zurich; Crédit

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9 SWX Group

10 SWX Group BUILT ON SOLID FOUNDATIONS The SWX Group ensures the proper functioning of the stock exchange and capital market in Switzerland s financial centre on a permanent basis. It provides different trading platforms for the domestic and crossborder securities markets. The platform for the Swiss market is operated by the SWX Swiss Exchange. The Group offers access to European and global markets through Eurex, the world s largest derivatives exchange, and virt-x, the pan-european cash market. Jürg Spillmann The consolidation process in financial markets during recent years also left its mark on trading turnover at the SWX Group in The national cash market, where shares, bonds, warrants and structured products are traded on the SWX Swiss Exchange platform, registered a slight decline in turnover compared with the year-earlier level, as did blue chips on the virt-x crossborder platform. Thanks to the takeover of virt-x in the first quarter, the SWX Group regained control of trading in SMI stocks and was thus able to free up considerable synergies. This led to major improvements in the areas of corporate finance, taxation and cash flow management, as well as cost savings within the organization. As was the case in previous years, turnover on Eurex, the international derivatives exchange, bucked the general trend and chalked up another new record. The SWX Group derives roughly three-quarters of its income from three main sources: 44.5% is generated by standardized derivatives trading on Eurex, 19% by the virt-x crossborder platform and 10% by the SWX Swiss Exchange domestic platform. The 10-year extension of the Eurex cooperation agreement with Deutsche Börse ensures that both partners will continue to occupy a key position in the global growth market for derivatives. The diversified SWX Group can look back on a good business year, given the prevailing market conditions. As an unlisted company that is fully committed to the Swiss financial centre, it passed on part of its profits to its active participants in the form of a rebate on Exchange fees, thereby lowering the cost of accessing its cash markets (see page 61). The Group s companies are financially sound and solid. The newly created holding structure gives the SWX Group greater room for manoeuvre in the consolidation process underway at European securities exchanges. Agricole Indosuez (Suisse) SA, Lausanne; Crédit Agricole Indosuez Cheuvreux, Courbevoie; Crédit Lyonnais (Suisse) SA, Geneva; Credit Suisse, Zurich; Credit Suisse First Boston

11 SWX Group Annual Report Comprehensive service offering underpins strong global presence The SWX Group is one of Europe s top securities exchange service providers and is dedicated to serving all players on the Swiss financial marketplace. The Group plays an active role in the continuing integration of European securities markets, not least because it can count on the extremely efficient Swiss financial services industry. Its diversified business areas range from the operation of cash and forward markets to information products and specialized products and services, such as the market for Swiss franc repurchase agreements (repos) or the compilation and marketing of fund market data. By operating both a domestic and a crossborder cash market, the SWX Group offers two different ways of accessing its core business, which embraces the activities of the SWX Swiss Exchange, virt-x and EXFEED. The Group adopts an extremely flexible approach to the development and operation of high-tech trading platforms, providing alternative tie-in possibilities in response to different customer requirements. Linchpin of the Swiss financial centre The SWX Group carries out a wide variety of tasks to promote the attractiveness and efficiency of the Swiss financial centre. In exercising its many duties and responsibilities, it is called upon to meet decisive challenges for the entire sector. With its top-class services, the Group performs a vital role in ensuring that Switzerland s financial marketplace remains attractive for domestic and foreign capital. Market regulation Within the context of self-regulation, the SWX Group provides a market-oriented and dynamic regulatory framework for securities trading in Switzerland. The involvement of market participants in regulation means that it can be adapted more swiftly and effectively to changing conditions and requirements, and benefit from the expertise of those directly concerned. For domestically and internationally traded securities listed on the SWX Swiss Exchange, the Group offers a regulatory framework which guarantees an efficient capital market and makes Switzerland more attractive for market players. It is essential to keep the Swiss capital market fully functional, all the more so in an environment marked by the ongoing integration of European financial markets. Swiss Value Chain Together with self-regulation, another key to the success of Switzerland s securities trading industry is the seamless integration provided by the Swiss Value Chain. Swiss banks realized early on how efficiency could be greatly enhanced and costs drastically reduced by applying straight-through processing to securities trades. The Swiss Value Chain, a joint undertaking by three entities, has made this possible. SWX Group handles the core trading segment. SIS Swiss Financial Services Group AG is responsible for settlement and custody, and has acted as central counterparty in securities clearing since May Payment transactions are dealt with by the Telekurs Group. In order to meet the requirements of virt-x crossborder trading, the Swiss Value Chain has been completely reorganized and tied into foreign clearing and settlement organizations. (Europe) Ltd., London; Deutsche Bank (Switzerland) Ltd., Zurich; Deutsche Bank AG - Global Equity Derivatives, Frankfurt; Deutsche Bank AG London, London; Dexia Private Bank

12 SWX Group SWX Group as an employer The SWX Group abides by the highest ethical standards. It behaves in a socially responsible manner not only towards its employees, but also towards its environment and the public. The aim is to create value on a social scale, i.e. to promote meaningful human relationships that will live on in the future. The biggest single contribution to the creation of value is made by the Group s employees. After all, it is their professional and social skills that enable the SWX Group to provide its complex financial services and to preserve its technological and regulatory edge. At end-2003, the Group s core business (comprising the SWX Swiss Exchange, virt-x and EXFEED) employed 471 people, equivalent to full-time jobs. Goodwill ambassadors The atmosphere within the SWX Group and its public image are both shaped to a large extent by its employees. They give the Group its unmistakable face and stand behind the success and quality of its services, which is why they are featured prominently in activities aimed at enhancing communications. A promotional campaign using staff members to project the SWX corporate image was launched in the reporting period. Employees are not only the main force driving the high added value inherent in SWX Group products and services; they are brimming with aspirations as well. To meet these needs, the Group actively encourages talented and motivated employees to develop their skills through a broad range of further education and training modules. Apprenticeships play a central role in his process. Each year, three apprentices begin commercial or IT training in the core business of the SWX Group. Altogether, eight apprentices were undergoing training last year, the same number as in Service-oriented environment Employees can look forward to a service-oriented working environment at the SWX Group. The relatively low staff turnover rate, which was observed even before the meltdown of financial markets, attests to a congenial atmosphere and attractive terms of employment. The Group also boasts a very good pension scheme, which was fully funded both at 31 December 2002 and 31 December (Switzerland), Zurich; Dresdner Kleinwort Wasserstein Securities Limited, London; Dreyfus Söhne & Co. Ltd., Banquiers, Basle; E*Trade Securities Limited, London; E. Gutzwiller

13 SWX Group Annual Report Further refinement of Group structure The Group s corporate structure was slimmed down and made more flexible in the past two years. The SWX Swiss Exchange Association holds the entire capital of the SWX Group, which does not engage in business activities as a holding company. The SWX Group holds all the capital of the SWX Swiss Exchange AG (SWX AG) and EXFEED AG, and a 33% stake in STOXX Limited. For its part, SWX AG holds all the capital of virt-x Ltd. and a 50% stake in Eurex Zürich AG. SWX Swiss Exchange Association SWX Group 100 % SWX Swiss Exchange AG 100 % EXFEED AG 100 % 33 % STOXX Limited 100 % 50% virt-x Ltd. Eurex Zürich AG Source: SWX Group Business areas of the SWX Group Crossborder cash market Swiss cash market Trading platforms Information products Standardized derivatives Core business virt-x SWX Swiss Exchange EXFEED Subsidiaries STOXX Eurex Source: SWX Group & Cie., Banquiers, Basle; Ehinger & Armand von Ernst AG, Zürich, Zurich; Exane SA, Paris; Fortis Bank (Nederland) N.V., Frankfurt Branch, Frankfurt; Goldman, Sachs & Co. Bank,

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15 Core business

16 Core business TWO EXCHANGES ONE MANAGEMENT The forces that shape the European financial services industry are continuously shifting between banks, securities exchanges, clearing and settlement organizations and other market players. This dynamic trend is the result of economic, political and regulatory influences. In the medium term, we can expect crossborder securities trading to be concentrated on just a few platforms, while securities targeted at investors based in a particular region will probably continue to be traded on national or regional bourses. Against this background, the SWX Group is pursuing a two-pronged strategy which is geared not only to the internationalization of its service offering but also to strengthening the Swiss financial marketplace on a lasting basis. Takeover of virt-x As part of its international strategy, the SWX Group launched the virt-x pan-european exchange jointly with leading investment banks in This exchange is domiciled in London, which is indisputably Europe s top financial centre. After increasing its stake in virt-x, the Group took over the company as a whollyowned subsidiary last year. Further cost-cutting potential Members of virt-x may choose between different clearing and settlement organizations. Thanks to automated processing, the cost of crossborder trading at virt-x is already significantly lower than at rival exchanges. With the greater flexibility of its connection and market models, the SWX Group is making its trading platforms more attractive for Swiss and foreign financial institutions. The planned technical amalgamation of the two platforms in the cash market will make it possible to offer participants one-stop access to trading and settlement for both nationally and internationally traded securities. This will reduce costs significantly, not only for the SWX Swiss Exchange and virt-x but for participants as well. Now that the Group is the sole owner of virt-x, it controls virtually all trading in Swiss blue chips and also commands an appreciable market share of crossborder equities trading in Europe. Thanks to this acquisition, the Group is in an excellent position to expand its share of crossborder trading or to explore new avenues of international cooperation. Zurich; Hottinger & Cie., Banquiers, Zurich; HSBC Private Bank (Suisse) S.A., Geneva; Hypothekarbank Lenzburg, Lenzburg; ING Bank Bruxelles Lambert (Suisse) SA, Geneva; Instinet

17 SWX Group Annual Report Uniform management structure After taking full control of virt-x, the SWX Group simplified management structures in its core business. The SWX Swiss Exchange, virt-x and EXFEED, all of which are wholly owned by the SWX Group, are now run by a single management team. This makes it easier to pursue a consistent strategy in all core business segments, speeds up the decision-making process and shortens response times throughout the Group. A reorganization carried out in the spring of 2003 eliminated overlapping and duplication in various work routines. Based on an analysis of the specific knowhow of SWX and virt-x employees, some operational functions were centred in either Switzerland or London. This released synergistic potential. The exchange of experience between Group employees in these two centres continues to be strongly encouraged under the new organization. Two independent exchanges in different regulatory environments The SWX Group s core business, which includes the activities of the SWX Swiss Exchange and virt-x, is influenced by two different regulatory systems. The SWX Swiss Exchange is governed by Swiss law (the Federal Act on Stock Exchanges and Securities Trading, SESTA), which embodies the concept of self-regulation, albeit taking international standards into account. SWX is supervised by the Swiss Federal Banking Commission (SFBC). By contrast, virt-x is governed by British law as a Recognised Investment Exchange (RIE) and is supervised by the UK Financial Services Authority (FSA). The regulatory framework for issuers trading on virt-x (listing and admission to trading of securities) is established by the authorities of their respective home country. The provisions applicable to securities listed in Switzerland are set out in the Listing Rules of the SWX Swiss Exchange. Both exchanges have regular discussions with their supervisory authorities. is undergoing some upheavals at the moment. With regard to issuer regulation, the Prospectus and Transparency Directives are of particular importance for the SWX Swiss Exchange and virt-x. Market abuse and insider dealing are major themes being addressed in the trading field. The SWX Group is closely monitoring developments in European financial legislation and, depending on the outcome, will review its own regulatory procedures in order to strengthen its competitive position. Should SWX decide to adopt EU rules, however, the specific characteristics of the Swiss market will be taken into account. Swiss Value Chain further expansion and networking Global market players (mostly international banks) are increasingly calling for facilities enabling them to conduct trading, clearing and settlement operations on favourable terms across national frontiers, in an environment where the existing infrastructure for these transactions is normally organized along national lines. While international networking on the settlement front is already at an advanced stage, clearing links are still frequently subject to territorial restrictions, i.e. they only function within a given country or legal jurisdiction. As yet, the principle of a single point of entry for different markets has not been adopted as much as one would like. Many market participants are forced to tie in to several infrastructure organizations, which can be expensive. The unique Swiss Value Chain, a joint undertaking by the three institutions responsible for the infrastructure of the Swiss financial centre SWX Group (trading), SIS Group (settlement) and Telekurs Group (payment transactions) is the leader in automated crossborder clearing and settlement. What is more, it now boasts an extensive network of international links. In its Financial Services Action Plan, the European Union has laid the groundwork for a uniform EU corporate banking market, open and secure retail banking markets, and modern regulatory and supervisory procedures, as well as setting out wide-ranging requirements for an optimum internal capital market. This plan has given rise to a number of directives which directly concern stock exchanges and are at various stages of preparation and implementation. The regulatory environment in the European Union Europe Limited, London; J.P. Morgan Securities Ltd., London; Kepler Equities, Zurich Branch, Zurich-Altstetten; La Roche & Co Banquiers, Basle; Lehman Brothers International

18 Core business Swiss Value Chain Payment Settlement Clearing Trading London Clearing House Clearing Members CRESTCo virt-x SIS x-clear AG Clearing Members SIS SegaInterSettle AG Swiss Interbank Clearing SNB/SECB SWX International Bonds Euroclear Clearstream Luxembourg Source: SWX Group Virtual integration of financial markets The Swiss Value Chain also offers participants of our trading platforms inexpensive high-tech connections to foreign financial centres. This broad-based infrastructure enables crossborder trades, including clearing and settlement operations, to be conducted from one location. The Swiss Value Chain is at the forefront of the Europe-wide consolidation process in the clearing and settlement field. With tieins to London Clearing House, Euroclear, CRESTCo, Clearstream and Eurex Clearing, the Swiss financial centre is already networked with all major European infrastructure organizations. Central counterparty a further achievement The reporting period saw further systematic expansion of the Swiss Value Chain, combined with additional options for participants. The SWX Swiss Exchange, for example, put in place a fully automated link to Clearstream Banking, Frankfurt, thereby laying the basis for the trading, clearing and settlement of German mortgage bonds (Pfandbriefe). This provides a simple means of expanding the supply of foreign bonds available on the existing SWX infrastructure. Further links with other important global settlement agencies in Europe are planned. A milestone in the development of the Swiss Value Chain was the launch of the central counterparty (CCP) for virt-x on 5 May This means that the settlement side of pan-european equities trading has been extended to include the clearing system that is increasingly becoming the accepted norm, and that counterparty risks borne by participants have been practically eliminated. Clearing is compulsory at virt-x for on-order-book trading, and is available as an option off the order book. The tie-in of SIS x-clear with London Clearing House allows participants to choose the clearing alternative which is best suited to their own infrastructure from the legal and organizational standpoint. Since the CCP service was introduced, roughly half of all trades conducted at virt-x have been cleared between members of the London Clearing House and those of x-clear. Together with the post-trade anonymity and netting capability provided by CCP, the already high settlementon-time rate was further increased. At 99.9%, it is now the highest in the entire industry. For settlement operations, virt-x members may continue to choose between SIS SegaInterSettle, Euroclear and CRESTCo. (Europe), London; LGT Bank in Liechtenstein AG, Vaduz; Liechtensteinische Landesbank AG, Vaduz; Lombard Odier Darier Hentsch & Cie, Geneva; Maerki Baumann & Co. AG, Zurich;

19 SWX Group Annual Report Market review The various market segments of the SWX Swiss Exchange and virt-x displayed divergent trends in the period under review. The downturn in interest rates at the start of the year initially led to a rise in trading turnover on bond markets. Despite a calmer second half, turnover in the fixed income segment was not far below the previous year s record level. International equity markets continued to head downwards until March, when they touched bottom. By the end of the year, however, the decline in share prices and in turnover had been more than offset by the turnaround that started in the second quarter. Trading in warrants showed a comparable trend to that of equities, albeit with an even more marked recovery in the second half. After the substantial losses suffered in previous years, investors have returned to the equity markets, although the time is not ripe for new listings and uncertainty is still too high. High potential in warrant market TRENDS IN LISTED SECURITIES* In derivatives trading, the SWX Group provides customers with access to Eurex, the world leader in standardized derivatives. Additionally, however, the SWX Swiss Exchange operates one of Europe s largest market segments for exchange traded warrants in terms of trading turnover (CHF billion). The SWX warrant market offers great product variety and favourable listing conditions, and can accommodate new investor requirements swiftly and very flexibly. SWX is convinced of the above-average growth potential of the market for warrants and structured products. In the reporting period, it continuously expanded the transaction capacities and functionalities of its platform for warrants, as well as putting in place automated and simplified listing procedures. SWX commands an 18.4% share of the European warrant market, including unlisted products. This places it among the market leaders, together with EUWAX (55.2%). In the SWX warrant market, 71.3% of products are accounted for by standard options, 13.6% by exotic warrants (notably barrier products) and 15.0% by structured products with capital protection, maximum yield and income optimization, and certificates Swiss Equities** International Equities Exchange Traded Funds Closed End Funds Swiss Bonds Foreign Bonds Swiss Derivatives Source: SWX Group * Only SWX Swiss Exchange, securities are not listed at virt-x ** Incl. SWX Local Caps Segment Foreign Derivatives 2003 Maple Bank GmbH, Frankfurt; Merrill Lynch Capital Markets Ltd., Zurich; Merrill Lynch International, London; Mirabaud & Cie, Banquiers, Geneva; Morgan Stanley & Co.; Interna-

20 Core business SWX provides market makers with clearly defined transaction capacities for warrants trading. The interplay of the equity market (primarily Swiss blue chips) and the warrant market (in particular, warrants on Swiss shares or baskets with Swiss shares and indices) leads to higher liquidity. Furthermore, modern market control procedures and supervision ensure fair and market-oriented pricing. WARRANTS TURNOVER BY EXCHANGE IN 2003 (2002) SWX Swiss Exchange 18.5% (25.3%) London Stock Exchange 0.4% BME Spanish Exchanges 2.2% (0.2%) Stockholmsbørsen 0.9% Euronext 6.5% (5.6%) Helsinki Exchanges 0.7% (0.7%) Borsa Italiana 15.6% (26.1%) Source: FESE EUWAX 55.2% (38.0%) Internet-based listing Trading is not the only area in which the SWX Swiss Exchange relies on automated and integrated processes. It has extended this concept to the admission of securities with the introduction of Internet-based listing (IBL), a websupported application that simplifies admission procedures and ensures efficient and low-cost listing of warrants, structured products and bonds. IBL enables all requests for admission to be submitted directly by applicants over the Internet on a decentralized basis. Automated interfaces to all core-data systems ensure fast processing for admission to trading and high data quality. The entire procedure takes place within a common system environment for issuers, applicants and the SWX Swiss Exchange. Thanks to this integrated processing chain and customer proximity, SWX can react rapidly and flexibly to changing market requirements and product innovations. Systematic improvements on the regulatory front ensure the maintenance of high standards for the listing process while allowing simplification of documentation. In the case of standard options, it is now possible to publish listing notices electronically, which keeps publication costs down. IBL offers a graded fee structure. Transparency in the Fund Market from project to product The Transparency in the Fund Market (TIF) project was successfully completed with the implementation of the full TIF programme in early October Last year saw an improvement in fund market transparency, notably as a result of the first-ever publication of TIF statistics on volume growth of investment funds in Switzerland. The longawaited introduction of ranking lists is planned for The SWX Swiss Exchange will then have met all the requirements specified by the Swiss Funds Association (SFA), when it commissioned the project early in The full TIF programme offers a modern Internet platform for the recording, processing and distribution of fund data. The data to be supplied by fund managers is based on a stringent data management system developed by SFA, which is capable of systematically recording the many different legal forms of investment funds around the globe (collective investment agreement, SICAV, UCITS, etc.). This is necessary because considerably more foreign funds with differing legal forms than domestic funds are marketed in Switzerland. The TIF Internet solution aims to provide high data quality. By using a large number of complex data acquisition controls, it ensures that the data is complete, correct and up-to-date. With the TIF product, the SWX Swiss Exchange is well prepared to meet growing international requirements in the area of market transparency for investment funds. tional Ltd., London; NZB Neue Zürcher Bank, Zurich; Pictet & Cie., Banquiers, Geneva; Privatbank IHAG Zurich AG, Zurich; Rabobank International, Utrecht Branch, CB Utrecht;

21 SWX Group Annual Report Innovative cost transparency in the Swiss fund market Following the introduction of the full TIF programme, fund managers must enter additional reference data in the TIF system. For example, from January 2004 all fund managers in Switzerland are required to state the TER (Total Expense Ratio) of their funds in accordance with specified criteria in their half-yearly and annual reports. As interested investors will hardly be able to compare the TER shown in the various reports within a reasonable period, TIF will offer this extremely important service on the Swiss financial market from the first quarter of 2004 onwards. Total expense ratios will be made available to a broad public via the SWX website and SMF (Swiss Market Feed). TIF as popular as ever Since July 2001, EXFEED subscribers have been able to consult TIF fund prices through SMF free of charge. They receive daily updated prices for over 2000 investment funds, which together represent 80 90% of market volume in Switzerland. Last year the focus was on compilation of TIF fund market statistics and completion of the project, i.e. activation of the new Internet solution. Together with system development, this necessitated comprehensive customer training and care in Switzerland and abroad. Despite this additional burden, the number of fund promoters participating in the TIF project rose from 94 to 112 and the number of registered fund unit classes grew from 3090 to ETFs increasingly sought after in Europa The ETF (exchange traded funds) segment expanded further in 2003, continuing the trend observed in the previous year. ETF turnover at the SWX Swiss Exchange and virt-x rose by 33.6% on average (33.8% at SWX and 32.2% at virt-x). For the first time, ETFs on bonds were traded on the SWX Swiss Exchange in the reporting period. The ETF segments at SWX and virt-x therefore comprise 19 and 13 products respectively. It is an encouraging sign that turnover growth last year was also accompanied by a rise in the number of trades. This means that ETFs are not only becoming more popular with institutional investors, but that private investors are increasingly using them too. It is compulsory for all ETFs traded on SWX and virt-x to be assigned to one or more market makers. In other words, sufficient liquidity is guaranteed for the entire trading period. In total, there are eight exchanges in Europe offering an ETF segment in their home market. The SWX Swiss Exchange and virt-x rank third both in terms of turnover and the number of products traded. Together, they are the biggest provider of ETFs in different currencies, i.e. products that can be offered simultaneously in Swiss francs and the underlying currency. This means that the issuer is able to list and trade an ETF on SWX in Swiss francs, and offer it to an investor on virt-x in dollars. ETF TURNOVER BY EXCHANGE IN 2003 (2002) HEX 0.2% (0.1%) Stockholmsbørsen 4.7% (0.6%) SWX Swiss Exchange & virt-x 7.7% (4.5%) London Stock Exchange 4.6% (3.3%) Euronext 24.8% (48.1%) Source: individual exchanges Deutsche Börse AG 55.9% (43.1%) Professional training for securities traders Borsa Italiana 2.2% (0.3%) The SWX Swiss Exchange attaches the utmost importance to first-class professional training for securities traders, in order to ensure high quality standards for the use of the trading system and smooth execution of transactions. The quality of our training courses is also attested to by the fact that a growing number of traders employed by associated participants, as well as government employees and people working in the financial sector (middle- and back-office staff, investment advisers and portfolio managers), are taking the SWX trader examination. The aim is to provide candidates with the best possible preparation for the exam, so that they can qualify as licensed securities traders of SWX. Requirements are high: in addition to familiarity with products, we demand a thorough knowledge of the regulatory framework and trading procedures. Starting in 2004, candidates can prepare for the exam online. This enables both sides to respond swiftly to current changes in the market and the regulatory framework. In 2003, 159 people passed the exam and 96 people attended the courses held in London or Zurich. Rahn & Bodmer, Banquiers, Zurich; Raiffeisen Centrobank AG, Vienna; Rüd, Blass & Cie AG, Bankgeschäft, Zurich; Schroder & Co Bank Ltd., Zurich; SG Private Banking (Suisse)

22 Core business Technology Technology a core competence The SWX Swiss Exchange trading platform is one of the key elements of the Swiss Value Chain in the securities business and is characterized by a high degree of automation and full integration of all relevant processes in a straight-through processing (STP) system. The STP feature of the Swiss Value Chain continues to provide an unparalleled level of performance reliability by world standards, with a minimum of manual intervention. Several projects in various areas of the financial market were put in place or expanded by the addition of major functions last year. Central counterparty on virt-x As part of maintenance release 6.2, the platform was expanded in May 2003 by the inclusion of a central counterparty (CCP) capability, which is now in use for virt-x. A modest change in the user interface made it possible to combine the advantages of realtime STP with the benefits of a CCP with netting, without sacrificing any aspects of system automation or performance reliability. Together with the extra transaction sequence reporting flexibility provided in the same release, this same platform was made compatible with both Swiss and international rules and practices. BREAKDOWN OF CCP ACTIVITIES BY TURNOVER LCH 19.2% No CCP 0.2% x-clear 30.2% Source: SWX Group LCH/x-clear 50.4% TIF platform For some time, the SWX Swiss Exchange has provided a simple -based means for the publication of fund data and fund prices with its TIF (Transparency in the Fund Market) platform. In the year under review, this platform was superseded by a new solution based on an application server. The new platform provides users with an interactive browser interface. Users with relatively large data volumes can deploy an XML file interface, which can be integrated into existing fund manager routines without more ado. Besides the evident advantages of this kind of solution i.e. transactional security, ease of integration and the total avoidance of proprietary formats, applets and client software priority was also given to architectural reusability. With the introduction of the new solution in October 2003, SWX has not only improved its service offering for fund managers; it can now also provide services with similar features at short notice in the future. Repo platform Work on the platform commissioned by Eurex Repo focused on two levels in the year under review. While the Graphical User Interface (GUI) was adapted in line with user wishes and suggestions and the run-time improved, the infrastructure for access over the Internet is currently being upgraded to the state of the art. These changes were not made because of any lack of security but because mechanisms have now become available that render the use of the prior proprietary security software redundant. From spring 2004, a VPN (Virtual Private Network) link will be used for Repo and other products. VPNs are private connections over public networks with powerful authentication and coding features. These links do not depend on line type and can therefore be used as access and security infrastructures for a large number of services. SA, Geneva; Société Bancaire Privée S.A., Geneva; Société de Bourse Lémanique, Lausanne; Société Générale, Paris La Défense; Société Générale SA London Branch, London;

23 SWX Group Annual Report Multiple challenges Cost optimization and performance enhancement are the chief technological challenges at the SWX Swiss Exchange for the future. In concrete terms, the aim is to reduce participants fixed costs and replace them with variable performance components. This calls for a scalable solution tailored to individual participant requirements, but which is also based on the principle of equal treatment for all market participants. In addition, a significant increase in performance will meet market makers demands for a solution in which operating costs are degressive, rather than proportional. A change in the transaction model is therefore necessary to boost the efficiency of the platform. At the participant s end, both requirements can be implemented on the existing platforms. Furthermore, marketmaker efficiency will be enhanced by the planned introduction of quotes displayed in existing order books. Ancillary measures will make it easier for market makers to quantify system behaviour a help in minimizing market-making risks. Finally, improved filtering mechanisms mean that participants are not forced to make these investments at once. Trading System Server for Windows (TNS) With the delivery of the Trading System Server for Windows (TNS) in the year under review, the SWX Swiss Exchange has done much more than simply create a successor platform to the existing trading system. The new server was designed as a collection of components which can be deployed either in a box, as a distributed cluster or farm, or be cascade-connected. This gives both participants and SWX the opportunity to apply tailor-made solutions in a costefficient way or offer them to further groups of interested parties. The resulting applications are far-reaching. Distributed over many processors, the system can handle any Overview of TIF system environment TIF Partners Individual Report Recipients Media Fund Promoters Fund Manager Browser Browser Browser Own Application TIF XML Upload File Data Receivers SSL SSL SSL Browser Media Internet SSL Vendors Market Feed SWX Website Firewall TIF Webserver Firewall TIF Webserver Browser TIF System TIF System TIF Administrator Site A Site B SWX DWH Source: SWX Group Société Générale, Paris<br>Zurich Branch, Zurich; swissfirst Bank AG, Zurich; Swissnetbank.com AG, Zurich; Swissquote Bank, Gland; Timber Hill (Europe) AG, Zug; UBS AG, Zurich;

24 Core business number of transactions. When cascade-connected, they allow SWX, technical intermediaries and participants to optimize the machinery and bandwidths for particular requirements with a concomitant reduction in costs per performance unit. What is more, TNS has an open architecture, which greatly facilitates the support of various interfaces of different types. Thus, in addition to the SWX-specific programming interface MAPI (Member Application Programming Interface), TNS already supports the FIX protocol, which is widely used in the financial sector, and from autumn 2004 it will also transparently support existing SWX Member Own Applications (MOAs). All interfaces are available for Windows and UNIX. Access types Transaction capacity for the SWX Swiss Exchange and virt-x as a whole has grown some fifteenfold since the fully integrated electronic trading platform came on stream in Despite this, it is impossible to satisfy all participants requirements down to the last detail because their market behaviour has changed radically. In order to better meet their needs, numerous preparations were made last year to provide new functionalities and substantially higher capacity in There is also a demand for new, more economical and more flexible solutions for tying in banks to the integrated trading and settlement system. As explained earlier, TNS opens up a whole raft of new access options. Foremost among these is the tried and tested Native TS Connection, which offers the most comprehensive solution in terms of performance and functionality. The same technology is used for access via a Network Connectivity Provider (NCP) for virt-x and international bonds, and is a more economical alternative for the final participant. In the year under review, SWX put in place an additional access option, based on the FIX protocol, providing a simple, low-priced connection. FIX is a messaging standard (comparable to SWIFT) that is increasingly used in international securities trading. FIX helps to harmonize business processes and associated electronic messaging worldwide, with substantial cost savings in the development of trading and settlement systems. Member Application Programming Interface (MAPI) MOA Client TS Windows GUI UNIX MOA TS Windows GUI Windows MOA TS Windows GUI UNIX MOA FIX Application API Name MAPI XMLMAPI COM Open XMLMAPI FIX Server Platform TS UNIX Server TS Windows Server Source: SWX Group Union Bancaire Privée, Geneva; Van der Moolen Trading GmbH, Cologne; Van der Moolen UK Ltd, London; Wegelin & Co., Private Bankers, St. Gallen; Winterflood; Securities Limit-

25 SWX Group Annual Report SWX-FIX interface The SWX-FIX interface is run as an alternative access model. It has a limited functional range compared with a traditional SWX trading system no market data are available over FIX, for example. Even so, this economical link lets participants conduct all relevant exchange transactions, notably ensuring the settlement of completed transactions. FIX is less common in Switzerland than in other European countries at present, which means that foreign financial institutions equipped with FIX interfaces for their trading systems can be connected to the SWX trading platforms in a matter of weeks. In organizational terms, this link goes via an SWX service bureau which operates the necessary exchange access systems for participants. For technical and financial reasons, several participants share a trading system for each market. The link to members is effected by network operators, who are already offering their services to interested market players. Together with the prior solution, the new access possibilities provide a range of alternatives tailored to the different requirements of banks at prices which vary according to the service package. Access types Native TS Connection Network Connectivity Provider (NCP) Bloomberg Connectivity SWX FIX Interface Member Member Member Member TNA GUI TNA GUI NCP Client NCP Client Bloomberg Terminal Member Application FIX MOA MOA NCP Bloomberg XML MAPI MAPI NCP MOA MAPI Bloomberg System FIX TNS TS Multi Member TS Gateway Gateway Gateway VPN Service Bureau FIX TS Windows Server Gateway FIX TS Windows Server Gateway Exchange System Source: SWX Group ed, London; Zürcher Kantonalbank, Zurich; Aargauische Kantonalbank, Aarau; AB FIN S.A., Lugano; ABN AMRO Bank (Schweiz), Zurich; ACH - Securities SA, Geneva; Adler & Co.

26

27 Reports from individual companies

28 Reports from individual companies SWX Swiss Exchange SWX EMPHASIZING DIVERSITY The SWX Swiss Exchange is an important link in the value-added chain of Switzerland s financial centre. It organizes, develops and runs integral parts of the capital market infrastructure. The company s areas of business embrace the Swiss cash market, information products, and the development and operation of securities trading platforms. The shares traded on SWX are held primarily in Swiss custody accounts by domestic and foreign investors. The SWX trading platform is also used for bonds (Swiss franc bonds and international bonds), traditional investment funds, index-linked funds (known as exchange traded funds, or ETFs) and non-standardized derivatives. Furthermore, the SWX Swiss Exchange performs an important role as market watchdog by establishing a regulatory framework and monitoring and enforcing compliance with the relevant legal provisions. As an institution operating under the aegis of an association, it safeguards the interests of the Swiss financial centre and ensures fair and equal treatment for all market participants. In recent years, SWX has diversified its business activities and reduced its dependence on income from securities trading. In addition to developing and operating its trading platform, the SWX Swiss Exchange provides numerous services for other Group companies, including IT services for the virt-x pan-european platform and the Eurex derivatives exchange as well as the calculation and marketing of index and market data for STOXX and EXFEED. While 7% of income was derived from cash-market trading operations in the year under review (2002: 12 %), 17 % was generated by services (19%). The shareholding in Eurex brought in another 45% (34%). The remainder was accounted for chiefly by fee revenue. On aggregate, income declined by 4.8% to CHF 322 million last year. SWX SWISS EXCHANGE EARNINGS STRUCTURE TURNOVER BY PRODUCT SEGMENT IN 2003 (2002) 100% International Equities 3% (4%) Swiss Equities 14% (14%) Foreign Derivatives 2% (2%) Swiss Bonds 38% (38%) 80% 60% Swiss Derivatives 4% (5%) International Bonds 8% (9%) 40% 20% 0 Other earnings Service level agreements Eurex derivatives trading Exchange services* Exchange Traded Funds 2% (2%) Source: SWX Group Closed End Funds 1% (1%) Foreign Bonds 28% (25%) Source: SWX Group * Comprising exchange fees, admission fees and information services Privatbank AG, Zurich; AKB Privatbank Zürich AG, Zurich; Alpha Rheintal Bank, Berneck; Amas Bank (Schweiz) AG, Zurich; Amtsersparniskasse Schwarzenburg, Schwarzenburg; Amts-

29 SWX Group Annual Report Turnover slightly down In 2003, trades were conducted on the SWX Swiss Exchange platform (0.5% less than in 2002). Their total value was CHF billion, or 4.6% lower than the year-earlier figure. At CHF billion, turnover in equities traded on the SWX platform in 2003 was around the levels seen in previous years. Turnover in warrants fell by approximately 20% to CHF billion. In this segment, the growth in new issues and the installation by participants of more sophisticated IT systems and quote machines have led to a significant increase in transaction volume during recent years, but there has been no corresponding rise in the number of trades. Trading turnover in international bonds and listed Swiss franc bonds declined in the reporting period, amounting to CHF billion for international bonds ( 14.3%) and CHF billion for Swiss franc bonds ( 2.3%). TRADES BY PRODUCT SEGMENT IN 2003 (2002) Swiss Derivatives 19% (19%) International Bonds 4% (5%) Foreign Bonds 9% (10%) Closed End Funds 1% (1%) International Equities 11% (12%) Exchange Traded Funds 1% (1%) Source: SWX Group Foreign Derivatives 7% (6%) Swiss Bonds 4% (4%) Swiss Equities 44% (42%) By contrast, turnover in exchange traded funds (ETFs) was markedly higher, with a growth rate comparable to that of the previous year. Turnover in these increasingly popular instruments rose by over 33.8% to CHF 7.48 billion in TURNOVER IN EQUITY PRODUCTS (CHF M) TURNOVER IN FIXED INCOME PRODUCTS (CHF M) Swiss Equities International Equities Exchange Traded Funds Closed End Funds Swiss Bonds Foreign Bonds International Bonds Swiss Equities International Equities Exchange Traded Funds Closed End Funds Swiss Bonds Foreign Bonds International Bonds Source: SWX Group Source: SWX Group ersparniskasse Thun, Thun; Anglo Irish Bank (Suisse) SA, Geneva; Anker Bank, Zurich; Appenzeller Kantonalbank, Appenzell; Arab Bank (Switzerland) Ltd., Zurich; Arbinter-Omni-

30 Reports from individual companies SWX Swiss Exchange NEWLY LISTED BONDS PER MONTH (EXCL. NEW TRANCHES) No. of issues TURNOVER BREAKDOWN BY LOCATION OF SWX PARTICIPANTS* FL 2 participants, 0.8% F 1 participant, 0.1% NL 1 participant, 0.0% GB 16 participants, 7.7% D 6 participants, 0.2% 10 A 1 participant, 0.0% 5 CH 59 participants, 91.2% Source: SWX Group 0 January February March April May June July August September October November December * Only participants already tied in, i.e. excluding those in the induction phase Source: SWX Group Fewer issues of equities and debt securities Subdued economic trends and the uncertain stock market environment also left their mark on new issues of shares and bonds. After declining in 2002, the number of listings fell again in the reporting period. New listings of shares were down 67%. The number of capital increases was unchanged over the year. Listings of bonds increased by 30.7%, whereas those of derivatives dropped by 24.3%. No initial public offerings were floated last year. Owing to delistings, however, some companies are no longer to be found on the quotations list of the SWX Swiss Exchange. This is partly the result of mergers (e.g. BT & T Life AG and BT & T Time AG). In other cases, companies were delisted because of takeover offers or successful purchase offers by majority shareholders, after which a squeeze-out was launched. This happened, for instance, to Disetronic (taken over by Roche), Centerpulse (acquired by Zimmer of the US) and Hilti (privatization). New segmentation concept The SWX Swiss Exchange drew up a new segmentation concept for its equity market during the year, with a view to enhancing the appeal of SWX and virt-x for domestic and international investors and issuers. The concept lays down new regulatory segments for issuers. Fledgling emerging-growth companies are also to be given continued access to the capital market if they can satisfy stiffer transparency requirements. At the same time, SWX intends to make its universe of financial market indicators more attractive by increasingly marketing index families, rather than individual indices. Participants The number of participants continued to level out in 2003, despite the positive trend in turnover. At the end of the year, a total of 86 participants were trading on the SWX platform. There were 59 participants from Switzerland, 16 from the United Kingdom, 6 from Germany and 5 from other countries. In order to preserve the participant base, the SWX Swiss Exchange developed flexible and low-cost access models and made preparations to significantly enhance the performance of its platforms. valor SA, Geneva; Arbitrium Finanz AG, Zurich; Archelon Suisse GmbH, Zug; ARVEST Privatbank AG, Pfäffikon SZ; Arzi Bank AG, Zurich; Aston Bond S.A., Lugano; ATAG Asset Man-

31 SWX Group Annual Report SWX as regulator The SWX Swiss Exchange is required by law to regulate the market and supervise issuers. Numerous innovations in the area of transparency requirements for issuers are continuously being introduced on markets around the globe. These developments are closely monitored by the SWX Swiss Exchange, which thanks partly to self-regulation is positioned as a highly adaptable market with a competitive regulatory framework. It constantly endeavours to strike the right balance between the various interest groups. The Directive on Information Relating to Corporate Governance, which was implemented for the first time last year, and the preparation of the Directive on Disclosure of Management Transactions are two examples of how the SWX Swiss Exchange successfully puts self-regulation into practice. By systematically imposing sanctions for breaches of the rules, SWX ensures the credibility of self-regulation. First experiences with the Corporate Governance Directive The 2003 reporting period was the first year in which issuers had to furnish the information stipulated by the SWX Corporate Governance Directive (DCG). In general, most of the information required was published by issuers in their annual reports. There is, however, room for improvement in some areas, notably as regards the data on Group structure and shareholders and Information policy. Compliance with the Directive was at its best in terms of the information provided under the following headings: Auditors, Change in control and defensive measures, Compensation, shareholdings and loans and Board of Directors. Sanctions were imposed on some issuers for failure to comply with the DCG. On behalf of the Admission Board, the Institute for Accounting and Controlling of the University of Zurich conducted a systematic analysis of issuers compliance with the Directive. The study was presented at a SWX event on 1 December Over 300 participants attended this event, at which national and international developments in the area of corporate governance were discussed. Disclosure of management transactions The Admission Board of the SWX Swiss Exchange approved a Directive on Disclosure of Management Transactions on 20 October The core requirement is that members of the board of directors and the management must henceforth disclose their transactions in financial instruments issued by their company. Such disclosure improves the information available to investors, in that transactions in own shares can provide pointers to the management s assessment and thus help investors to form an opinion on future performance. When preparing this new Directive, the SWX Swiss Exchange conducted a transparent, public consultative procedure over the Internet for the first time. Enforcement concept for ad hoc publicity The SWX Swiss Exchange carries out regular investigations into possible violations of the provisions governing ad hoc publicity. If suspicions of an infringement are confirmed in the course of a preliminary inquiry, it launches a formal investigation and informs the media. Should the investigation bring to light conduct which calls for sanctions, the Executive Committee of the Admission Board decides on the sanction to be imposed. The SWX Swiss Exchange informs the public by way of media releases. The published sanctions can also be consulted on the SWX homepage. agement AG, Bern; Atlantic Vermögensverwaltungsbank AG, Zurich; Atlas Capital S.A, Geneva; Baloise Bank SoBa, Solothurn; Banca Aletti & C. (Suisse) SA, Lugano; Banca Arner SA,

32 Reports from individual companies SWX Swiss Exchange New accounting and financial reporting rules Publication requirements in the area of financial reporting were updated in several respects during the year. In addition to making IFRS and US GAAP standards compulsory for companies listed in the main trading segment from 2005 onwards, requirements pertaining to interim reporting were tightened and publication deadlines for annual and interim reports were shortened. From 2005, SWX-listed companies must publish their annual report no later than four (instead of six) months after the balance sheet date. By the same token, interim reports of issuers with listed equities have to be submitted three (four) months after the balance sheet date. More initiatives in the accounting field The SWX Swiss Exchange keeps track of global trends in capital market regulation, and also takes into account recommendations of the International Organization of Securities Commissions (IOSCO). In the area of financial reporting, for example, the question of whether a Management Discussion and Analysis (MD & A) chapter should be included in annual reports is now under consideration. Based on normal practice in other countries, MD & A involves an analysis of business trends by the management as well as reports on risks, dependencies and relevant forward-looking information. Enforcement of accounting standards Sanctions are a necessary means of enforcing regulations, not least in order to enhance the transparency, efficiency and credibility of the securities market and hence of the Swiss financial centre as a whole. The tougher enforcement procedures announced at the end of 2002 were implemented in the year under review. Together with the delisting of an issuer in the SWX Local Caps segment for repeatedly failing to meet reporting requirements, an audit company was also struck off the register. In addition, 11 sanctions were published (3 in 2002). It is encouraging to note that no qualifications whatsoever were to be found in auditors reports on the consolidated financial statements for One of the reasons for this is that the SWX Swiss Exchange had insisted on the publication of restatements for several 2001 annual reports which contained a qualification by the auditors. STANDARDS APPLIED TO ANNUAL REPORTS (2002) ARR 34% Other 3% US GAAP 4% Source: SWX Group Accounting and reporting standards IAS (IFRS) Swiss GAAP ARR Banks (RRV-SFBC) US GAAP Other 2 8 Total* * = Total primary-listed shares at SWX Source: SWX Group SFBC bank standards 7% IAS (IFRS) 52% Figures for 2003 were not available as we went to press, because listed companies have up to the end of June 2004 (six months from the balance sheet date) to publish their annual reports. Publication of sanctions In October 2003, the SWX Swiss Exchange began publishing full details of decisions to impose sanctions, provided that publication is announced as part of the sanction. Considerably more sanctions for breaches of the accounting rules (11 out of 13) were published in the year under review; this compares with 3 out of 11 in In the area of ad hoc publicity, 4 out of 5 sanctions were published (2002: 4 out of 4). Failure to comply with the Corporate Governance Directive led to the imposition of 3 sanctions without publication last year. Lugano; Banca Commerciale Lugano, Lugano; Banca del Ceresio SA, Lugano; Banca del Sempione, Lugano; Banca dello Stato del Cantone Ticino, Bellinzona; Banca di Credito e Com-

33 SWX Group Annual Report VIRT-X WELL POSITIONED INTERNATIONALLY The SWX Group acquired all the virt-x shares held by TP Group LDC and public shareholders in the reporting period. Sole ownership by the SWX Group means that virt-x can enjoy all the advantages associated with being part of a specialized securities exchange organization, and benefit from synergies within the Group. In December 2002, the SWX Swiss Exchange anounced its intention to take full control of virt-x. The takeover was completed early in April 2003, and virt-x plc cancelled its listing on the Alternative Investment Market (AIM) of the London Stock Exchange the same month. It was then newly registered as a private company, virt-x Exchange Limited. As a result of the new ownership structure, the composition of the boards of virt-x plc and virt-x Exchange Limited was changed. Satisfactory trading activities Despite persistently unfavourable trading conditions, the virt-x crossborder platform registered turnover of CHF billion (GBP billion) and a total of trades in This represents a decline of 13.2% over the year. virt-x provides the market with order books for different blue chips and also offers functionalities for overthe-counter trading. Around 97% of all equity trades on virt-x were executed in the electronic order book, accounting for 72% of total turnover. While this proportion reflects the import- ance of electronic order book trading, it also shows that dealings off the order book are frequently given preference when large amounts are involved. Since June 2001, virt-x has been the home market for all the constituent shares of the Swiss Market Index (SMI) and has succeeded in increasing its SMI market share from 71% to 89%; this compares with 81% at the end of Trading volume in non-smi stocks is not yet up to expectations. GEOGRAPHICAL BREAKDOWN OF TRADABLE EQUITY PRODUCTS IN THE VIRT-X ORDER BOOK (EXCL. ETF) Ireland 1 Italy 30 Netherlands 24 Spain 7 Sweden 4 Switzerland 36 Norway 1 United Kingdom 103 Source: SWX Group Finland 1 Germany 30 Denmark 1 France 37 Belgium 3 Change in earnings structure Excluding LRFAs (Limited Recourse Facility Arrangements), virt-x posted revenue of GBP 37.7 million in 2003, compared with GBP 43.2 million in the previous year, when it was still being run as a joint venture with TP Group LDC, the consortium of investment banks which held just under 40% of its shares until last spring. The 20.4% decline in virt-x turnover a downtrend which has continued since mid-2002 was mainly caused by lower fee revenue from Swiss blue chip trading. The earnings position was also affected by the fact that the LRFAs between virt-x and members of TP Group LDC provided a smaller contribution in the year under review. Under these LRFAs, members were committed to making an advance payment of trading fees, which accrue to virt-x if they cannot be offset against trading activities. The amount of unused advance payments dropped from GBP 5.7 million in 2002 to GBP 1.4 million in The LRFAs, which were introduced when virt-x was launched, expire in May mercio SA, Lugano; Banca Euromobiliare (Suisse) SA, Lugano; Banca Monte Paschi (Suisse) SA, Geneva; Banca Popolare di Sondrio (Suisse), Lugano; Banca Popolare di Sondrio

34 Reports from individual companies virt-x In October 2002, virt-x announced measures to reduce costs in London by 30% an objective which was fully achieved in the reporting period. Thanks to this and the efforts to exploit synergies generated by the SWX Group s purchase of the company, costs incurred in the United Kingdom were cut by a further CHF 3 million. These moves have led to a 45% reduction in staff numbers at virt-x since October members The 101 members of virt-x are domiciled in the United Kingdom, Germany, the Netherlands, Austria, France, Ireland and Switzerland. Low tie-in costs have become an increasingly important argument for potential new members. In view of this, virt-x is now offering economical connectivity options with FIX-based solutions. It is also reviewing its fee structure, which it intends to simplify for the benefit of members and the exchange, and in order to drive up new orders. When trading in SMI stocks, members have so far been able to choose between the pan-european fee scale used by virt-x and the fees charged by the SWX Swiss Exchange for Swiss shares. virt-x is now examining the repercussions which possible changes in the fee structure may have on the future expansion of its market. Leading-edge technology at low prices Thanks to the virt-x business model and the consolidation of this company as a wholly owned subsidiary, the SWX Group is ideally positioned to play a key role in shaping the future of securities trading in Europe. The introduction of a central counterparty (CCP) has rounded off the virt-x integrated trading and settlement model, creating an opportunity to further reduce the costs of crossborder trading at every stage of the trading and settlement process. TURNOVER BREAKDOWN BY LOCATION OF VIRT-X PARTICIPANTS* A 1 participant, 0.0% F 4 participants 7.8 % NL 1 participant 0.2% CH 61 participants 48.4% IE 1 participant 0.0% GB 28 participants, 42.4% D 5 participants, 1.2% Source: SWX Group * Only participants already tied in, i.e. excluding those in the induction phase (Suisse), Lugano; Banca Privata Edmond de Rothschild Lugano SA, Lugano; Banca Unione di Credito, Lugano; Banco Santander Central Hispano (Suisse) SA, Geneva; Bank Coop AG,

35 SWX Group Annual Report EXFEED UNFLAGGING DEMAND FOR REALTIME DATA EXFEED had to contend with increasingly difficult operating conditions in Banks and other financial institutions continued to rein in spending, which led to a decline in the number of reported professional data users. Thanks to selective cost-cutting measures, however, the company finished the year with a balanced operating result. Capital investment in broadcasting architecture, software development and telecommunications bandwidths was stepped up last year in order to stay ahead of demand for ever higher data transmission speeds. EXFEED also streamlined its reporting and billing systems in a move to reduce administrative overheads. These cost savings will be passed on to end-users. Stable earnings year on year Connection fees received from vendors and sub-vendors were 2% higher than in In the professional segment, total exchange fees (dependent on user numbers) declined, but EXFEED s two most important products nevertheless showed differing trends. While level-1 exchange fees for inside-market data (best bid/ask and last trade) fell by 9%, level-2 exchange fees (providing a depth-10 display of the best bids/asks plus the last trade) posted an encouraging 18% advance. The non-professional segment benefited from the stock market rally that began in April. Fee revenue from Internet financial portals rose slightly year on year. Selective streamlining measures enabled EXFEED to reduce its operating expenditure by 11% to CHF 8.3 million. The main cuts were made in personnel, PR and marketing expenses, as well as in general office and administrative overheads. Operating profit before licensing fees and taxes totalled CHF 8.4 million, compared with CHF 8.7 million in After deduction of non-recurring charges, licensing fees and taxes, net profit for 2003 came to CHF (CHF in the previous year). INCOME IN 2003 Exchange fees Internet non-professional 20% Exchange fees professional segment level-2 11% Connection fees vendors and sub-vendors 13% Exchange fees professional segment level-1 56% Source: EXFEED Basle; Bank EEK, Bern; Bank Hapoalim (Schweiz) AG, Zurich; Bank Hugo Kahn & Co. AG, Zurich; Bank im Thal, Balsthal; Bank in Huttwil, Huttwil; Bank in Zuzwil, Zuzwil; Bank Jacob

36 Reports from individual companies EXFEED Contrasting developments in user numbers Among the biggest licensed users of EXFEED data, i.e. major vendors and global players in the financial services industry, the number of level-1 data users fell significantly in some cases, whereas the number of level-2 data users increased slightly. SHARE OF VENDORS PROFESSIONAL IN EXFEED PROFESSIONAL USER SEGMENT Fides 1% Other 5% Infotec 1% Moneyline Telerate 3% Telekurs 22% Source: EXFEED Reuters 41% Bloomberg 27% At end-2003, the company was serving a total of 100 customers. Most were vendors, who resell the data they obtain from EXFEED further down the line. Other major customers included seven financial institutions with licensing agreements. Non-professional users are primarily served through Internet financial portals. After getting off to a roaring start in 1999 and 2000, this segment subsequently underwent a drastic consolidation. The online data providers that survived this turbulent period were able to maintain their position on the Swiss market in Since April of last year, the use of realtime price reporting in this segment has picked up again. The market data sector was hit hard by the massive job losses in international financial centres like Switzerland, London and New York between the second half of 2001 and mid Those that suffered most were vendors of data terminals. Given the reluctance of banks to take on new staff and the strict cost controls in place throughout the financial services industry, there is little chance of an increase in the number of data users in the foreseeable future, even though the outlook for equities is improving. Because of the notice period required for termination of data-terminal licensing agreements, however, the impact on EXFEED s revenues will be delayed. User numbers might even drop by a further 7% or so in the first half of Numerous projects successfully completed The market data industry expects aggregate realtime data to grow in the coming years. Projections call for a tenfold expansion of present volume. To ensure that the company is ready to meet this challenge in time and complies with the highest quality standards, a number of infrastructure and development projects were carried out in The most important of these included a new, direct interface between the virt-x and SWX Swiss Exchange trading systems and the EXFEED ticker plant (the central processing unit for realtime data), and the migration from X.25 to TCP/IP data stream technology. Both these moves are designed to optimize data throughput and provide the flexibility to extend telecommunications bandwidths where necessary. Given the steady growth in data volume, this enhanced capability looks set to become an essential requirement. EXFEED website in the lead The latest addition to the EXFEED website was completed in December 2003, when online reporting became operational. This application enables licensees to report user numbers to EXFEED monthly via a data input form providing a breakdown by product and region. The numbers are then checked by an EXFEED account manager and automatically fed into the billing system. What was once a timeconsuming and paper-based process is now settled with a few mouse clicks. Safra (Suisse) SA, Geneva; Bank Jura Laufen, Delémont; Bank Jura Laufen, Laufen; Bank Leerau, Kirchleerau; Bank Leumi le-israel (Schweiz), Zurich; Bank Linth, Uznach; Bank

37 SWX Group Annual Report Strategic focus and new projects EXFEED is constantly enriching its product and service mix, in order to meet changing information and disclosure requirements. Starting in January 2004, investment fund data featuring the TIF (Transparency in the Fund Market) product will be actively promoted. The data management system had already been introduced and standardized when the TIF project was finalized in spring The supplementary recording of master data gives EXFEED the opportunity to add meaningful market statistics to its product offering. International regulations influencing business models New international regulations (the EU Investment Services Directive [ISD], for example) relating to equity and debt markets also touch upon matters that affect providers of market data and information products. It is hard to gauge the consequences of these developments at this stage. System architecture and data flow overview SWX Exchange System virt-x Exchange System Reuters STOXX Interface SWX Market Feed Interface Telekurs Market Data Feed virt-x Market Feed Interface Prices Other Inputs STOXX System Indices Indices SMF System Prices Swiss Prices only Indices PEX-MF System Prices hp NonStop System SwissIndex System virt-x Composite Index System Static Data (4D) X.25 or TCP/IP Mathematica Static Data (4D) X.25 or TCP/IP Static Data (4D) X.25 or TCP/IP STOXX Partners SMF Vendors PEX-MF Vendors Source: EXFEED Morgan Stanley AG, Zurich; Bank of New York - Inter Maritime Bank, Geneva, Geneva; Bank Sparhafen Zürich, Zurich; Bank Thur, Ebnat-Kappel; Banque Amas (Suisse) S.A., Geneva;

38 Reports from individual companies Eurex EUREX AN EVER-EXPANDING UNIVERSE In terms of trading and settlement volume, Eurex is the world s largest financial derivatives exchange. It maintained this leadership position in 2003, and opened up a whole new business area by establishing Eurex Clearing AG as a central counterparty for the Frankfurt Stock Exchange. In addition, the company took major steps towards setting up an Eurex trading platform in the United States and expanding its operations in that country. The Eurex Repo and Eurex Bonds segments likewise extended the lead they hold in their respective fields. The uptrend in trading volume that has been a constant feature at Eurex since the company commenced operations in 1998 continued during the reporting period. Eurex handled 1015 million contracts in 2003, marking an increase of about 26.7% compared with the year-earlier figure. Fixed income derivatives accounted for the largest proportion of trading volume. These contracts numbered 562 million, up 25.7% over the year. They included Euro Bund futures (derivatives on a fictional German sovereign bond with a remaining term of 8 10 years), the futures segment with the highest trading volume in the world. Business in equity options also expanded. Trading in the newly launched Dutch and French equity options segments, in particular, captured market shares of 12% and 9.7% respectively. Substantial increases in volume were registered in equity index derivatives as well. The most widely traded pan-european equity index derivatives, futures and options on the Dow Jones EURO STOXX 50 SM, chalked up year-on-year growth rates of 33.4% and 56.5% respectively; in absolute terms, the number of traded contracts totalled 116 million and 61 million. EUREX TRADING VOLUME, Millions of traded contracts Source: Eurex Average daily trading volume in 2003: 4 million contracts Number of members practically unchanged The number of Eurex members levelled out last year. There were a few isolated departures arising from changes in the structural organization of market participants, but they had little or no impact on trading operations. The opening of a US exchange will lead to an increase in the number of members in Banque Audi (Suisse) SA, Geneva; Banque Banorient (Suisse), Geneva; Banque Baring Brothers (Suisse) S.A., Geneva; Banque Bauer (Suisse) SA, Geneva; Banque Cantonale de Fri-

39 SWX Group Annual Report NUMBER OF EUREX MEMBERS Source: Eurex Product range growing continuously The product line-up was enhanced last year with the introduction of ten new sector instruments. NEMAX derivatives were replaced by futures and options on the TecDax equity index, reflecting a move by Eurex to take account of developments in the technology sector. At the same time, the range of equity options was substantially expanded as new contracts were launched on nearly all the components of France s bellwether CAC 40 index. EUREX TRADING VOLUME BY PRODUCT CATEGORY, % + 50 % + 26 % % + 31 % (% = growth ) + 42 % Millions of traded contracts Other products Euro Bund futures Euro Bobl futures Euro Schatz futures Equity index products Equity options Tapping into the world s biggest derivatives market In order to expand its existing US derivatives business to include products based on underlying American securities, Eurex is setting up a new fully automated derivatives exchange offering US fixed income and equity index derivatives under American trading regulations. The Clearing Corporation, the largest independent futures settlement organization in the US, will handle clearing and settlement under the terms of a long-term cooperation agreement concluded with Eurex in September This agreement provides for the creation of a transatlantic exchange that will begin operating in Eurex Repo This segment operates two international markets for sale and repurchase agreements featuring fully automated settlement. The Swiss franc repo market is tied in with SIS SegaInterSettle AG. The euro repo market is served by the central counterparty, Eurex Clearing AG, itself linked with Clearstream Banking and Euroclear. One of Eurex Repo s specialities is its auction function, enabling leading financial institutions to hold proprietary auctions for their financial products. At present, the Swiss National Bank uses this function on behalf of the Federal Finance Administration for new and supplemental issues of Swiss government bonds and money market book claims. SNB uses Eurex Repo to control money supply Volume outstanding on the Swiss franc repo market rose to more than CHF 50 billion in the ten months to October Business conducted by the Swiss National Bank (SNB) currently accounts for about 55% of the total. The SNB has declared the facilities offered by Eurex Repo, SIS and SIC as the standard infrastructure for operations in Swiss francs. In the next two years, the Lombard facility introduced by the SNB will create business flows between another 80 to 100 Swiss banks and Eurex Repo, bringing the total number of banks tied in with the Swiss franc repo market to roughly 200. Source: Eurex bourg, Fribourg; Banque Cantonale du Jura, Porrentruy; Banque Cantonale du Valais, Sion; Banque Cantonale Neuchâteloise, Neuchâtel; Banque de Commerce et de Placements SA,

40 Reports from individual companies Eurex SWISS FRANC REPO MARKET, 2002/2003 Average volume outstanding (EUR bn) 20 EURO REPO MARKET, 2002/2003 Average volume outstanding (EUR bn) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Basle II a further impetus for growth Channelling banks cash positions for liquidity management purposes is a primary function of the Swiss franc repo market. This almost exclusively involves trading in General Collateral Repos, which are increasingly taking over from traditional, unsecured money-market transactions. The main forms of collateral attributed automatically by the SIS Triparty Service are European sovereign bonds and German Jumbo mortgage bonds. Looking ahead to the Basle II guidelines for banks scheduled to come into force at end- 2006, Eurex Repo holds a front-running position in this area. These guidelines, drawn up by the Bank for International Settlements (BIS), will pose a challenge to financial institutions worldwide by setting additional and more complex capital adequacy requirements. Their impact on the euro repo market will be equally far-reaching. New trading record Volume outstanding on the euro repo market reached a new high-water mark at EUR 22.5 billion in October Most of the growth came in the General Collateral Repo segment, which now represents around 55% of overall trading in this market. The number of participants rose to 26 following the admission of two new financial institutions in the third quarter. In response to the growing trend towards standardization, the 12-month term was introduced by Eurex Repo as an additional standard duration. This means that the entire yield curve, from overnight to 12 months, is now offered in the General Collateral segment. Bright outlook Eurex Repo intends to expand its business segments and break new ground in the coming year, for example by creating electronic debt securities together with SIS or with Euro GC Pooling and Clearstream Banking. Given its marketoriented approach and close cooperation with alliance partners and regulatory agencies alike, Eurex Repo is clearly on the way to becoming the leading service provider for secured financing in the whole of Europe. Geneva; Banque de Gestion Financière BAGEFI, Zurich; Banque de la Méditeranée (Suisse) SA, Geneva; Banque de Patrimoines Privés Genève BPG SA, Geneva; Banque Degroof (Suisse)

41 SWX Group Annual Report Eurex Bonds Trading volume jumped 34% last year at Eurex Bonds, one of the leading electronic trading platforms specializing in German sovereign debt, Jumbo mortgage bonds, KfW and EIB issues and underlying instruments for combinations of futures contracts and sovereign bonds. Based on single counting, the value of contracts handled daily averaged EUR 718 million, up from EUR 537 million in Five additional institutions joined the Eurex Bonds trading platform during the reporting year, bringing the number of authorized participants to 27 (including the German Financial Agency and the Bundesbank). Central counterparty in numerous segments Eurex, a joint venture in which the SWX Swiss Exchange and Deutsche Börse AG each hold a 50% stake, has its own settlement organization Eurex Clearing AG serving as central counterparty for buyers and sellers. This service is also used by market participants of Eurex Repo and Eurex Bonds. In March 2003, Eurex Clearing AG s role as a settlement agency was considerably expanded when it became the central counterparty for certain equity transactions conducted on the Frankfurt Stock Exchange. Since September 2003, Eurex Clearing AG has provided guaranteed crossborder deliveries and acted as Euroclear s automatic borrower for trades handled by Eurex Repo and Eurex Bonds. This move has resulted in an increased volume of Euro General Collateral Repos featuring German sovereign bonds. MONTHLY TURNOVER IN EUR M (SINGLE COUNTING) Q Q Q Q Q Q Q Q German Government Bonds Basis Trades Jumbos Sub-Sovereigns Bubills Source: Eurex SA, Geneva; Banque Diamantaire (Suisse), Geneva; Banque Franck & Cie SA, Geneva; Banque Galland & Cie SA, Lausanne; Banque IPPA & Associés, Luxembourg, Lausanne; Banque

42 Reports from individual companies STOXX STOXX LEADING EUROPEAN INDEX PROVIDER STOXX Limited celebrated its fifth birthday in The company has grown steadily since it was founded, capturing additional market share each year despite ever keener competition and the depressed state of financial markets during much of the period. Behind this success story lie a sustainable business model and three committed venture partners: SWX Group, Dow Jones & Co. and Deutsche Börse AG. Headquartered in Zurich, STOXX Limited has become Europe s foremost provider of equity indices in its five years of existence. It took only a short time for the STOXX brand name to achieve a high profile among European investors. Institutional players throughout the continent appreciate the high quality and attractive prices of STOXX services. The company is benefiting from the ongoing trend towards pan-european investing in the institutional segment, where crossborder trading has been given a considerable boost by the introduction of the euro. Thanks to the Dow Jones STOXX industry group indices, major investors can buy into specific industries across Europe. Simple, reliable proxies The Dow Jones STOXX indices cover the entire European market, encapsulating a variety of complementary criteria such as region, size, sector and style. With their strict adherence to rules and transparency, these benchmarks are not only highly appropriate as proxies but also easily tradable and extremely trustworthy. Their commercial success has been built on such vital features. STOXX indices are mainly used for structured products, index funds, exchange traded funds (ETFs) and derivatives. STOXX commands a large market share in several segments. In Europe, its indices serve as benchmarks for approximately 30% of all assets invested in structured products and for 25% of all assets invested in index-based funds (ex Asian, global and US vehicles). In the case of exchange traded funds available in Europe, their market share is around 40%. In the burgeoning sustainable-investment segment, where it is present with its Dow Jones STOXX Sustainability Indexes, STOXX signed major licensing agreements with institutional investors during the reporting year. Jenni & Cie SA, Basle; Banque MeesPierson BGL SA, Nyon; Banque MeesPierson BGL SA, Zurich; Banque Notz Stucki, Geneva; Banque Pasche S.A., Geneva; Banque Safdié SA, Geneva;

43 SWX Group Annual Report Barometer of Europe s financial markets Based on open interest in index futures, the Dow Jones EURO STOXX 50 has a share of roughly 30% in the European market. In the segment for index options, its share is 50%. Worldwide, the Dow Jones EURO STOXX 50 future ranks as the second most popular contract in terms of open interest. More than 100 million contracts on Dow Jones STOXX indices changed hands via Eurex in The year also saw new records set for trading volume: 16.5 million futures and 6.2 million options were traded on the Dow Jones EURO STOXX 50, beating the previous peaks of 12.5 million and 5.7 million reached in September 2002 and January 2003 respectively. Broad customer base At end-2003, STOXX had 319 licence holders in 29 countries. Its biggest customers are asset management companies that develop and market products based on STOXX indices. Trading fees generated by STOXX index-based derivatives are another major source of income for the company. Lasting joint venture backed by strong partners STOXX Limited has its main office and operations centre in Zurich, where its indices are calculated. These benchmarks owe their success to the outstanding cooperation between the company s three shareholders, which contribute their special skills and know-how to the joint venture. They provide the following services for STOXX under the relevant service level agreements: The SWX Swiss Exchange calculates the indices and makes the necessary facilities available for the index team and company headquarters. Dow Jones & Co. maintains the master data, processes the corporate actions of companies included in the indices and manages the historical database. Deutsche Börse AG distributes data to vendors via the Consolidated Exchange Feed (CEF). Trend towards index investing The increasing use of blue chip indices as underlying assets on derivatives markets points to continuing buoyancy for the STOXX business model in the years ahead. Index-based products are gaining ever wider appeal among investment fund managers, creating further growth potential for companies that offer such benchmarks. OPEN INTEREST ON DJ EURO STOXX 50 DERIVATIVES in bn 400 MARKET SHARE OF REGIONAL ETF MEASURED BY ASSETS UNDER MANAGEMENT 70% % % % % % % 50 0% 0 January 2003 February 2003 March 2003 April 2003 May 2003 June 2003 July 2003 August 2003 September 2003 October 2003 November 2003 December 2003 FTS Eurofirst 80 FTSE Euro 100 S&P Euro S&P Europe 350 MSCI Euro MSCI Pan Euro DJ STOXX 50 DJ EURO STOXX 50 Source: Eurex DJ EURO STOXX 50 Futures DJ EURO STOXX 50 Options Source: STOXX Banque Syz & Co. SA, Geneva; Banque Thaler SA, Geneva; Banque Vontobel Genève SA, Geneva; Banque Worms (Genève) SA, Geneva; BanSabadell Finance SA, Geneva; Bantleon Bank

44

45 Annual financial statements of the SWX Group

46 AG, Zug; Barclays Bank (Suisse) SA, Geneva; Basellandschaftliche Kantonalbank, Liestal; Baumann & Cie Banquiers, Basle; BBO Bank Brienz Oberhasli, Brienz; BBVA Privanza Bank

47 Contents 49 Consolidated annual financial statements for 2003 Consolidated balance sheet 50 Consolidated income statement 51 Consolidated cash flow statement 52 Notes to the consolidated annual financial statements 1 Summary of significant accounting policies 54 2 Scope of consolidation 55 3 Changes in scope of consolidation 55 4 Cash and marketable securities 56 5 Accounts receivable 56 6 Prepaid expenses and accrued income 57 7 Summary of fixed assets 57 8 Investments in subsidiaries 58 9 Intangible assets Other liabilities Accrued expenses and deferred income Provisions Solidarity fund Changes in equity Segment data Personnel expense Other operating expenses Financial income Other expense/revenue Taxes Off-balance-sheet transactions Pending transactions Post-balance-sheet events Related parties Staff pension fund 65 Report of the Group Auditors 66 Annual financial statements of the SWX Group, Zurich (company financial statements) Balance sheet 68 Income statement 70 Notes to the annual financial statements 71 Proposal of the Board of Directors 72 Report of the Auditors 74 (Suiza) SA, Zurich; BDL Banca di Lugano, Lugano; BEKB BCBE, Bern; Berenberg Bank (Schweiz) AG, Zurich; Bernerland Bank, Sumiswald; Bezirkssparkasse Dielsdorf, Dielsdorf;

48 CONSOLIDATED BALANCE SHEET in CHF Note ASSETS Cash Marketable securities Total cash and marketable securities Accounts receivable Deferred tax assets Prepaid expenses and accrued income Total current assets Fixed assets Investments in subsidiaries Intangible assets Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY Other liabilities Accrued expenses and deferred income Total short-term liabilities Deferred tax liabilities Provisions Solidarity fund Total long-term liabilities Total liabilities Share capital Capital reserve Retained earnings Total equity TOTAL LIABILITIES AND EQUITY Bezirkssparkasse Uster, Uster; BGG Banque Genevoise de Gestion, Geneva; BGP Banca di Gestione Patrimoniale SA, Lugano; BHF-Bank (Schweiz) AG, Zurich; Biene - Bank im Rhein-

49 Consolidated annual financial statements for CONSOLIDATED INCOME STATEMENT in CHF Note INCOME STATEMENT Revenues Personnel expense 16 (88 990) (90 458) Depreciation and amortization of fixed and intangible assets 7/ 9 (75 918) (51 889) Other operating expenses 17 ( ) ( ) Operating income Net financial income Other expense/revenue Profit before taxes Taxes 20 (14 482) (14 189) PROFIT FOR THE YEAR tal, Altstätten; BIPIELLE Bank (Suisse), Lugano; BLP Banque de Portefeuilles, Lausanne; BNP Paribas (Suisse) SA, Geneva; BNP Paribas Private Bank (Switzerland) SA, Geneva;

50 CONSOLIDATED CASH FLOW STATEMENT in CHF CASH FLOW STATEMENT Profit for the year Depreciation and amortization of fixed and intangible assets Changes in provisions (8 275) Deferred income taxes Income from holdings in companies accounted for using the equity method (887) (1 700) Cash flow (Increase) decrease in accounts receivable for services (11 286) Decrease (increase) in other accounts receivable (41 134) Decrease in accounts payable for services (13 986) (3 293) (Decrease) increase in other accounts payable Net cash provided by (used in) operating activities (Decrease) increase in long-term liabilities (11 540) 328 Net cash provided by (used in) financing activities (11 540) 328 Bondpartners SA, Lausanne; Bordier & Cie, Geneva; Bovay & Partenaires SA, Lausanne; BPT Trading SA, Lausanne; BPVi (Suisse) Bank SA, Lugano; Bridport & Cie SA, Geneva; BS

51 Consolidated annual financial statements for in CHF Increase in fixed assets (14 695) (32 280) Increase in intangible assets (52 622) (17 675) Increase in holdings (3 923) (2 246) Changes in scope of consolidation (11 316) plus cash taken over Net cash flow provided by (used in) investing activities (62 456) (52 201) Unrealized exchange differences (1 277) Net increase in cash and marketable securities Cash and marketable securities at 1 January Cash and marketable securities at 31 December of which marketable securities Bank Schaffhausen, Hallau; BW Vermögens-Management (Schweiz) AG, Zurich; C.I.M. Banque, Geneva; Caisse d'epargne d'aubonne, Aubonne; Caisse d'epargne de la Ville de Fribourg,

52 Notes to the consolidated annual financial statements 1 Summary of significant accounting policies Introduction The consolidated financial statements of the SWX Group have been prepared in accordance with the Swiss Accounting and Reporting Recommendations FER/ARR (Swiss GAAP), and using historic costs. Scope of consolidation Companies in which the SWX Group holds a majority of the share capital and voting rights, or in which it holds 50% of the voting rights and exerts a significant influence, are fully consolidated. Companies included within the scope of consolidation are listed under note 2. Associated companies, i.e. those in which the SWX Swiss Exchange owns between 20% and 50% of the share capital, are accounted for using the equity method. Holdings of less than 20% are stated at cost less valuation adjustments. Principles of consolidation The consolidated financial statements are based on the financial statements of the individual companies, which are drawn up at 31 December using uniform accounting policies. Equity is consolidated using the purchase method. Intragroup expenses and income, intragroup accounts receivable and liabilities, as well as unrealized gains on intragroup transactions have been eliminated. The figure for revenues corresponds to billings for services and products provided to third parties less sales taxes and dereductions. Currency translation Balance sheets of Group companies that are drawn up in a foreign currency are translated using year-end exchange rates, while income statements are translated using average exchange rates for the year. The resultant translation difference is accounted for under equity as a separate item. Transactions in foreign currency are translated using daily exchange rates. Translation differences are recognized in income. Fixed assets Fixed assets are stated at acquisition or production cost less depreciation charged over the useful life of the assets using the straight-line method. Purchases of fixed assets exceeding CHF are capitalized. The useful life is estimated to be as follows: IT hardware 3 years Equipment, fixtures and fittings 3 years Motor vehicles 3 years Leasehold improvements Duration of rental agreement Investments in subsidiaries and loans Associated companies are consolidated in proportion to the percentage of capital owned. Other minority holdings are stated at cost, and loans at their nominal value. In the event of non-temporary impairment of an investment, a valuation adjustment is made. The net result of this position is included in the income statement under net financial income. Intangible assets Software which is purchased from or developed by a third party and costs more than CHF is capitalized and depreciated over no more than three years. Software produced in-house is capitalized at production cost and depreciated over an estimated useful life of 5 8 years. Goodwill is depreciated over five years using the straightline method, and its value is reevalueted each year. Other intangible assets such as patents, trademarks and other rights are capitalized at their historical cost and amortized over their estimated useful life (but not more than ten years) using the straight-line method. The amortization is charged to the income statement. Fribourg; Caisse d'epargne de Nyon, Nyon; Caisse d'epargne de Prez, Corserey et Noréaz, Prez-vers-Noréaz; Caisse d'epargne de Siviriez, Siviriez; Caisse d'epargne du Dis-

53 Consolidated annual financial statements for Accounts receivable The figure for accounts receivable corresponds to billings less necessary valuation adjustments. Securities Securities with a market value are carried at market value and those with no market value are carried at their net investment value or at cost, less the necessary depreciation. Revenue from this item is included in the income statement under net financial income. Valuation adjustments and provisions Appropriate valuation adjustments are made for identifiable individual risks. Provisions serve to cover risks of loss and performance commitments. They are calculated on the basis of uniform and invariable business management principles. 2 Scope of consolidation The following companies are fully consolidated: SWX Group, Zurich (formerly SWX Holding AG; parent company; share capital CHF ). SWX Swiss Exchange, Zurich (wholly owned; share capital CHF ; securities exchange and securities exchange services). SWX Swiss Exchange UK Ltd., London (wholly owned; share capital GBP 1; member support for SWX clients). Holdings in the following companies are accounted for using the equity method: Eurex Zürich AG, Zurich (50% stake; share capital CHF ; European derivatives exchange). Due to existing profit-sharing certificates, the stake in the capital of Eurex Zürich AG is calculated at 20%. STOXX Limited, Zurich (33.3% stake; share capital CHF ; markets European index families). Börsen-Informations AG, Basle (33.3% stake; share capital CHF ; general promotional activities for the Basle financial marketplace, operates Financial Meeting Point in Basle). 3 Changes in scope of consolidation The following changes were made in the scope of consolidation in 2003: SWX Group (formerly SWX Holding AG; new parent company). virt-x Ltd. (formerly 39.9% stake; now wholly owned). virt-x Ltd., London (formerly virt-x plc; wholly owned; share capital GBP ; holding company of virt-x group). virt-x Exchange Ltd., London (wholly owned; share capital GBP 100; securities exchange). New Soffex AG, Zurich (wholly owned; share capital CHF ; dormant). EXFEED AG, Zurich (wholly owned; share capital CHF ; financial information distributor). trict de Cossonay, Cossonay; Caisse d'epargne du District de Courtelary, Courtelary; Caisse d'epargne du District de Vevey, Vevey; Caisse d'epargne et de Prévoyance d'yver-

54 Notes to the consolidated annual financial statements 4 Cash and marketable securities in CHF Credit balances with banks Call and time deposits Total cash Money market funds Hedge funds Bonds Other marketable securities 13 8 Total marketable securities TOTAL CASH AND MARKETABLE SECURITIES The position in hedge funds is carried at the net investment value, as no market value is available. Because of the uncertainty concerning the valuations of such investments and the fact that not all markets are liquid, these book values may diverge substantially from the realizable values. 5 Accounts receivable in CHF Accounts receivable for services from third parties from related parties Total accounts receivable for services Other accounts receivable from third parties from related parties Total other accounts receivable TOTAL ACCOUNTS RECEIVABLE In 2002, the item Other accounts receivable from related parties included a loan of CHF 52.4 million extended by the SWX Swiss Exchange to the SWX Group. This loan was offset against the dividend distribution by the SWX Swiss Exchange on 22 August don-les-bains S.A., Yverdon-les-Bains; Caixa Bank Banque Privée (Suisse) SA, Geneva; CAT Finance AG, Zurich; Cazenove & Co. Suisse SA, Geneva; CBG Banca Privata Lugano SA,

55 Consolidated annual financial statements for Prepaid expenses and accrued income in CHF Exchange fees for 4th quarter, information services Accrued exchange fees Accrued interest on securities Other prepaid expenses and accrued income TOTAL PREPAID EXPENSES AND ACCRUED INCOME Deferred tax assets, which amounted to CHF in 2002, are now shown as a separate item. 7 Summary of fixed assets in CHF IT Hardware Leasehold Other Total 2003 Total 2002 improvements Acquisition costs at Additions Changes in scope of consolidation Disposals (0) (0) (0) (0) (0) Acquisition costs at Accumulated depreciation at 1.1. (84 546) (10 851) (10 842) ( ) (68 539) Additions (15 163) (2 654) (5 058) (22 875) (29 044) Changes in scope of consolidation 0 (168) (157) (325) Disposals Extraordinary depreciation (0) (0) (0) (0) (8 656) Accumulated depreciation at (99 709) (13 673) (16 057) ( ) ( ) NET BOOK VALUE AT NET BOOK VALUE AT Fire insurance values in CHF IT hardware Other fixed assets Lugano; CBG Compagnie Bancaire Genève, Geneva; Citation SA, Zurich; Citibank (Switzerland), Zurich; Citibank N.A., Zurich; Clariden Bank, Zurich; Commerzbank (Schweiz) AG,

56 Notes to the consolidated annual financial statements 8 Investments in subsidiaries in CHF Eurex Zürich AG, Zurich STOXX Limited, Zurich virt-x Ltd., London TOTAL INVESTMENTS IN SUBSIDIARIES The SWX Group acquired 61.1% of the capital of virt-x Ltd. on 1 February As the Group held all the company s shares at 31 December 2003, virt-x Ltd. was fully consolidated in the year under review. 9 Intangible assets in CHF Goodwill Software Externally Internally Total 2003 Total 2002 licences developed developed software software Acquisition costs at Additions Disposals (0) (0) (0) (0) (0) (0) Acquisition costs at Accumulated amortization at 1.1. (320) (9 913) (18 235) (2 320) (30 788) (16 599) Additions (38 047) (1 560) (10 297) (2 814) (52 718) (14 189) Disposals Accumulated amortization at (38 367) (11 473) (28 532) (5 134) (83 506) (30 788) NET BOOK VALUE AT NET BOOK VALUE AT The Group began capitalizing software licences in Externally developed software consists of extended functionalities designed by third parties for the Eurex system. The figure for internally developed software refers to development costs for extending the SWX platform, that the Group began capitalizing starting in the 2001 financial year. In accordance with in-house regulations on the capitalization of internally developed software, expenditure incurred in each financial year is capitalized at year-end and written off over an estimated useful life of 5 8 years. In 2003, an amount of CHF 37.3 million was capitalized as goodwill from the acquisition of 61.1% of the capital of virt-x Ltd. Following an impairment review, this goodwill was reevalueted and fully written down through the income statement. Zurich; Compagnie Bancaire Espirito Santo SA, Lausanne; cosba private banking ag, Zurich; Credit du Lac S.A., Lugano; Crédit Lyonnais (Suisse) SA, Geneva; Crédit Mutuel de la

57 Consolidated annual financial statements for Other liabilities in CHF Due for goods and services to third parties Total due for goods and services Miscellaneous liabilities to third parties to related parties Total miscellaneous liabilities TOTAL OTHER LIABILITIES Accrued expenses and deferred income in CHF Employee benefits Staff welfare fund Stamp tax Swiss Federal Banking Commission Other accruals and deferrals TOTAL ACCRUED EXPENSES AND DEFERRED INCOME Pursuant to the ordinance concerning fees of the Swiss Federal Banking Commission, part of the Commission s costs are covered by a turnover fee levied by the SWX Swiss Exchange on securities trading. The estimated amount payable to the Commission for the 2003 financial year is CHF 9 million. Provisions for staff holidays and overtime, variable salary components and accruals for the Swiss Federal Banking Commission are now accounted for under Accrued expenses and deferred income. Vallée SA, Le Sentier; Credit Suisse Fides, Zurich; Credito Privato Commerciale SA, Lugano; Daiwa Securities SMBC Europe Limited, London, Geneva Branch, Geneva; DC Bank Depos-

58 Notes to the consolidated annual financial statements 12 Provisions in CHF Provisions for guarantee Provisions for taxes Other provisions TOTAL PROVISIONS Based on current risk assessment procedures, the provisions of CHF 13 million set aside for the comfort letter in favour of Eurex Clearing AG, Frankfurt, were reversed at 31 December Provisions for staff holidays and overtime, variable salary components and accruals for the Swiss Federal Banking Commission are now accounted for under Accrued expenses and deferred income. 13 Solidarity fund in CHF At Deposits and contributions Interest Transfer to SWX Swiss Exchange Association (12 003) 0 TOTAL SOLIDARITY FUND Pursuant to the solidarity fund s rules and regulations, CHF per rightful claimant is to be paid into the fund from the securities turnover fee each year until the fund reaches CHF 10 million. This figure was reached at the end of The deposits and contributions registered in 2003 resulted from payments of fines imposed by the Disciplinary Commission which are allocated to the solidarity fund. Under the terms of an agreement between the SWX Swiss Exchange Association and the SWX Swiss Exchange on 12 December 2003, the solidarity fund was transferred from SWX to the Association with effect from 31 December ito-cassa der Stadt Bern, Bern; Decova S.A., Geneva; Deka (Swiss) Privatbank AG, Zurich; Delen (Suisse) SA, Geneva; Dominick Company AG, Privatbank, Zurich; Dresdner Bank

59 Consolidated annual financial statements for Changes in equity in CHF Share Capital Retained Total 2003 Total 2002 capital reserve earnings At Changes in scope of consolidation (premium from non-cash contribution) ( ) Profit for the year Translation differences (459) AT The share capital amounts to CHF 10 million, divided into registered shares with a nominal value of CHF each. On 13 August 2003, the share capital of the SWX Group was raised by CHF 9.9 million to CHF 10 million by means of a non-cash contribution from the SWX Swiss Exchange. The difference between this amount and the acquisition price was recorded as a premium (general legal reserve). The foreign currency difference results from the translation of individual accounts of foreign subsidiaries. 15 Segment data in CHF Spot securities trading Derivatives trading (Eurex Group) Information services Admission fees Revenue from service level agreements Miscellaneous revenue TOTAL REVENUE Revenue from spot securities trading included a rebate of CHF 15 million in At the same time, however, revenue in this segment increased due to the takeover of virt-x Ltd., while income generated through provision of services and entered under Revenue from service level agreements registered a corresponding decline. Revenue from derivatives trading again showed a positive trend. Miscellaneous revenue relates primarily to IT services provided for participants, investment protection fees and stamp taxes on the issuance of securities. (Schweiz) AG, Zurich; DTS DERIVATIVE TRADING SYSTEM AG, Zug; EB Entlebucher Bank, Schüpfheim; EFG Bank European Financial Group, Geneva; EFG Private Bank SA, Zurich; Ehinger

60 Notes to the consolidated annual financial statements 16 Personnel expense in CHF Compensation (59 448) (58 012) Social security payments (19 537) (19 390) Other personnel costs (10 005) (13 056) TOTAL PERSONNEL EXPENSE (88 990) (90 458) The item Other personnel costs includes a contribution of CHF 5 million to the SWX Group staff welfare fund. In 2003, an average of 454 people were on the permanent staff (428 in 2002). There were 447 full-time positions occupied at 31 December 2003, compared with 429 a year earlier. The total number of employees rose by 28 following the takeover of virt-x Ltd. 17 Other operating expenses in CHF Repairs and maintenance (17 915) (17 854) Public relations and marketing (5 652) (5 199) Telecommunications (19 648) (16 595) Rental expense (8 637) (7 658) Turnover fee payments to the Swiss Federal Banking Commission, solidarity fund contributions (8 386) (8 370) Agency agreement with Eurex (42 735) (40 024) Consultancy and services (23 955) (33 921) Miscellaneous operating expenses (18 062) (19 635) TOTAL OTHER OPERATING EXPENSES ( ) ( ) Expenditure on telecommunications rose in 2003, as the SWX Swiss Exchange provided more capacity for its participants. Fees for consultancy and services decreased last year due to savings on projects. Furthermore, in 2002 non-recurring expenses were incurred in connection with the acquisition of a majority shareholding in virt-x Ltd. & Armand von Ernst, Bern, Bern; Ersparnisanstalt der Stadt St. Gallen, St. Gallen; Ersparnisanstalt Oberuzwil, Oberuzwil; Ersparnisgesellschaft Küttigen, Küttigen; Erspar-

61 Consolidated annual financial statements for Financial income in CHF Interest income Dividend income Other income Financial income Interest expense (279) (313) Bad debt expense (72) (132) Stamp tax on creation of joint-stock company (0) (2 562) Other financial expense (372) (157) Financial expense (723) (3 164) Income from unconsolidated holdings Securities earnings (325) 0 Foreign currency earnings 348 (945) Valuation and exchange differences TOTAL FINANCIAL INCOME Dividend income for 2003 includes a dividend payment of CHF 3.2 million by STOXX Limited for the 2002 financial year. 19 Other expense/revenue in CHF Miscellaneous expenses (2 764) (2 017) Other expense (2 764) (2 017) Reimbursement of VAT for previous years Eurex share of SFBC turnover fees for previous years Reversals of provisions Other prior-period adjustments Other revenue TOTAL OTHER EXPENSE/REVENUE Reversals of provisions includes the reversal of the provision of CHF 13 million for the comfort letter in favour of Eurex Clearing AG. niskasse Affoltern i.e., Affoltern i.e.; Ersparniskasse des Amtsbezirks Interlaken, Interlaken; Ersparniskasse Erlinsbach, Erlinsbach; Ersparniskasse Rüeggisberg, Rüeggis-

62 Notes to the consolidated annual financial statements 20 Taxes in CHF Capital and income taxes (9 300) (7 505) Deferred income taxes (5 182) (6 684) TOTAL TAX EXPENSE (14 482) (14 189) Deferred income taxes are calculated on the differences between the book values of individual company accounts and the values used for consolidation purposes. A tax rate of 30% was applied for the calculation of deferred income taxes. 21 Off-balance-sheet transactions Contingent liabilities The SWX Swiss Exchange has committed itself in a comfort letter to providing Eurex Clearing AG, Frankfurt, with 20% of the financial resources it needs to fulfil its obligations as a clearing house. Due to a regulatory requirement of the UK Financial Services Authority, the SWX Swiss Exchange has committed itself to providing virt-x Ltd. with sufficient financial resources at any time. Long-term rental contracts Canton of Zurich, for the stock exchange building located at Selnaustrasse (expires 2012) Canary Wharf Management Ltd., Canary Wharf, London (expires 2005) 22 Pending transactions The risks inherent in pending transactions are covered by Other provisions. 23 Post-balance-sheet events No events occurred after the balance sheet date which would have a material impact on the consolidated financial statements for the year ended 31 December berg; Ersparniskasse Schaffhausen, Schaffhausen; F. van Lanschot Bankiers (Schweiz) AG, Zurich; Ferrier Lullin & Cie SA, Geneva; Fibi Bank (Schweiz) AG, Zurich; FIDEURAM Bank

63 Consolidated annual financial statements for Related parties In the course of normal business operations, the SWX Group provides services for the following related parties: SWX Swiss Exchange Association Eurex Zürich AG, Zurich STOXX Limited, Zurich in CHF Derivatives trading, Eurex Group Service level agreements, Eurex Zürich AG Service level agreements, STOXX Limited Service level agreements, virt-x Ltd Agency agreement, Eurex Zürich AG (42 735) (40 024) TOTAL RELATED PARTIES Services are billed on an arm s-length basis. Under the terms of an agreement between the SWX Swiss Exchange Association and the SWX Swiss Exchange on 12 December 2003, the solidarity fund was transferred from SWX to the Association with effect from 31 December As virt-x Ltd. was fully consolidated in 2003, its turnover figures are no longer shown. 25 Staff pension fund There is an affiliation with a collective insurance foundation that insures the employees of the SWX Swiss Exchange, STOXX Limited and Eurex Zürich AG. In order to show pension fund liabilities as required by Swiss GAAP (FER/ARR 16), this affiliation is treated as a defined contributions plan, i.e. its assets and liabilities are not carried in the balance sheet, and the portion of personnel expense accounted for by the employer s contributions CHF 7.4 million, against CHF 7.6 million in 2002 equals the booked expense. Reserves for the employer s contributions amounted to CHF 3.4 million at 31 December 2003 (CHF 3.4 million in 2002). The SWX Group has set up a welfare foundation for discretionary payments and the financing of retirement benefits, in order that employees of companies with which it has close business or financial ties are insured against the economic consequences of old age, disability and death. Since the foundation was established, the SWX Swiss Exchange has paid in an amount of CHF 13 million (CHF 5 million in 2003 and CHF 8 million in 2002). (Suisse) SA, Lugano; FIDURHONE S.A., Geneva; Finacor SA, Basle; Financière Mermod S.A., Lausanne; Financière SBA (Suisse) SA, Geneva; Finter Bank Zürich, Zurich; First Zürich

64 REPORT OF THE GROUP AUDITORS Zurich, 27 February 2004 As group auditors, we have audited the consolidated financial statements (balance sheet, income statement, statement of cash flows and notes, pages 50 to 65) of the SWX Group for the year ended 31 December These consolidated financial statements are the responsibility of the board of directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and faire view of the financial position, the results of operations and the cash flows in accordance with the Swiss GAAP ARR and comply with Swiss law. We recommend that the consolidated financial statements submitted to you be approved. Ernst & Young Ltd. sig. Martin Frey Certified Accountant (in charge of the audit) sig. Iqbal Khan Certified Accountant Private Bank AG, Zurich; FTI Banque Fiduciary Trust, Geneva; GESFID SA, Lugano; Glarner Kantonalbank, Glarus; Gonet & Cie, Banquiers, Geneva; Graubündner Kantonalbank, Chur;

65 Consolidated annual financial statements for GRB Glarner Regionalbank, Glarus; Habib Bank AG Zürich, Zurich; Hardcastle Trading AG, Rapperswil SG; Hentsch Henchoz & Cie, Lausanne; Héritage Finance & Trust S.A., Geneva;

66 BALANCE SHEET in CHF ) ASSETS Credit balances with banks Money market funds Hedge funds Bonds Total marketable securities Total cash and marketable securities Accounts receivable from third parties 304 from related parties 0 Total accounts receivable 304 Prepaid expenses and accrued income 874 Total current assets Investments in subsidiaries Total non-current assets TOTAL ASSETS ) First annual financial statements, therefore no year-earlier figures HSBC Guyerzeller Bank AG, Zurich; HYPOSWISS Privatbank AG, Zurich; IBI Bank AG, Zurich; IMC International Marketmakers Combination B.V., Unterägeri; IntesaBci Bank (Suisse),

67 Annual financial statements for 2003 of the SWX Group 69 in CHF ) LIABILITIES AND EQUITY Accounts payable to third parties 0 to related parties 80 Total accounts payable 80 Accrued expenses and deferred income 0 Total short-term liabilities 80 Provisions 265 Total long-term liabilities 265 Total liabilities 345 Share capital Legal reserve Profit for the year Total equity TOTAL LIABILITIES AND EQUITY ) First annual financial statements, therefore no year-earlier figures Zurich; Investec Bank (Switzerland) AG, Zurich; IRB Interregio Bank, Reinach; Israel Discount Bank (Switzerland) SA, Geneva; ITAG Vermögensverwaltung, Basle; J. P. Morgan

68 INCOME STATEMENT in CHF from to ) INCOME STATEMENT Personnel expense (50) Other operating expenses (65) Operating income (115) Interest income 707 Securities earnings 527 Dividends Write-downs on investments in subsidiaries (2 303) Foreign currency earnings (197) Other financial expense (129) Net financial income Profit before taxes Taxes (265) PROFIT FOR THE YEAR ) First annual financial statements, therefore no year-earlier figures (Suisse) SA, Geneva; J. P. Morgan Fleming Asset Management, Zurich; Jefferies (Switzerland) Ltd., Zurich; Jyske Bank (Schweiz), Zurich; Kredietbank (Suisse) SA, Geneva; L.B.

69 Annual financial statements for 2003 of the SWX Group 71 NOTES TO THE ANNUAL FINANCIAL STATEMENTS Guarantees and guarantee obligations in favour of third parties There are no guarantees, guarantee obligations or assets pledged in favour of third parties. Investments in subsidiaries in CHF SWX Swiss Exchange, Zurich STOXX Limited, Zurich EXFEED AG, Zurich TOTAL INVESTMENTS IN SUBSIDIARIES In 2003, SWX Holding AG purchased the shares held by the SWX Swiss Exchange in STOXX Limited, Zurich, for CHF , as well as its stake in EXFEED AG, Zurich, for CHF The 61.1% shareholding in virt-x Ltd. acquired by the SWX Group (formerly SWX Holding AG) on 1 February 2003 was sold to the SWX Swiss Exchange at the acquisition price of CHF The proceeds were offset against the loan granted by the SWX Swiss Exchange. A list of the subsidiaries of the SWX Group, showing their business activity, their share capital and the stake held, can be found on page 55 of the consolidated financial statements. Equity in CHF Share capital Legal reserve Profit at TOTAL EQUITY The SWX Group s share capital amounts to CHF , is fully paid up and is divided into registered shares with a nominal value of CHF each. All the shares of the SWX Group are owned by the SWX Swiss Exchange Association. Finance S.A., Geneva; L.N. Asset Management AG, Arbon; Landolt & Cie, Banquiers, Lausanne; Lavoro Bank AG, Zurich; LB (Swiss) Privatbank AG, Zurich; Leihkasse Stammheim, Ober-

70 PROPOSAL OF THE BOARD OF DIRECTORS Proposal of the Board of Directors concerning the appropriation of profit The Board of Directors proposes that the profit for the year of CHF should be carried forward. stammheim; Lemanik S.A., Lugano; LGT Bank in Liechtenstein AG, Vaduz, Zurich; Liechtensteinische Landesbank AG, Zurich; Lienhardt & Partner Privatbank Zürich AG, Zurich;

71 Annual financial statements for 2003 of the SWX Group 73 Lloyds TSB Bank Plc, Londres, Geneva; Luzerner Kantonalbank, Lucerne; Luzerner Regiobank AG, Lucerne; M.M. Cramer & Cie, Geneva; M.M. Warburg Bank (Schweiz) AG, Zurich; Man-

72 REPORT OF THE AUDITORS Zurich, 27 February 2004 As statutory auditors, we have audited the accounting records and the financial statements (balance sheet, income statement and notes, pages 68 to 72) of the SWX Group for the first business year ended 31 December 2003, covering the period from 19 December 2002 to 31 December These financial statements are the responsibility of the board of directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the company s articles of incorporation. We recommend that the financial statements submitted to you be approved. Ernst & Young Ltd. sig. Martin Frey Certified Accountant (in charge of the audit) sig. Iqbal Khan Certified Accountant gold Management Co. Ltd., Lausanne; MediBank, Zug; Merrill Lynch Bank (Suisse) S.A., Geneva; MFC Merchant Bank SA, Herisau; MIGROSBANK, Zurich; Mitsubishi Tokyo Wealth Man-

73 Annual financial statements for 2003 of the SWX Group 75 agement (Switzerland) Ltd., Geneva; Mizuho Bank (Schweiz) AG, Zurich; Morval & Cie SA, Geneva; Mourgue d'algue & Cie, Banquiers, Geneva; Neue Aargauer Bank, Brugg; Nidwald-

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