30 years at a glance

As we have just heard, the SMI was created in the context of the SOFFEX derivatives exchange, known today as EUREX. The first index-based products launched on the SMI were therefore index derivatives:

• Around six months after the SMI had been launched, the first options appeared on the index on 7 December 1988.
• A little later on 9 November 1990, the first future was allowed onto the SMI.
• More than ten years after that on 15 March 2001, the first ETF was launched.

The legal framework conditions have also changed over the past 30 years. With corresponding changes in the rules, we have ensured that the SMI meets the current requirements and continues to be a basis for financial products. I would like to briefly mention the two most important rule changes.

Until 24 September 2007, the SMI comprised a fluctuating number of stocks - in actual fact, it was between 18 and 29 companies. Until that date, a maximum of 30 stocks were simply defined. The Swiss stock exchange implemented the biggest change to the rules in 2007 by setting the limit at 20 stocks.

The second biggest change took place last year when the SMI aligned itself with the ESMA UCITS Directive by limiting the weightings of the constituents. The capping at 18% was carried out in two stages on 18 September and 18 December 2017 respectively. Since then, the major stocks Nestlé, Novartis and Roche have had a weighting of 18% in the SMI. The means that the SMI complies with the EU’s provisions on diversification and can be used as a reference index for the Swiss stock market in the European Union. The EU provisions on diversification are particularly important for the use of index derivatives, as they are a financial product regulated by the EU.

The limit of 20 stocks depends among others on the many mergers and takeovers on the Swiss market. The universe of equities has therefore become somewhat smaller over time. But there were definitely two mergers that were of particular relevance for SMI securities:

• 7 March 1996: Announcement of the merger of Ciba-Geigy and Sandoz to form Novartis. Both the new Novartis shares (registered and bearer shares) had a joint weighting of at least 26% in the SMI at the end of 1996.
• 8 December 1997: Announcement of the merger of Union Bank of Switzerland and Swiss Bank Corporation to form UBS.
• Even in 2017 after so many years, its consistency was emphasized by the takeovers of Actelion and Syngenta by foreign companies. In this instance, two new companies - Lonza and SIKA - moved up into the SMI.

The SMI has performed very well in the past 30 years, but it has had to deal with a number of short-term challenges that arose due to economic or politically difficult situations around the world. Let’s have a look at some of these events:

• 16 October 1989: Black Friday on the U.S. stock exchange catches up with Europe and Switzerland at the start of the week. This resulted in the largest daily loss on the SMI of -10.54%. 
• 13 October 2008: The announcement of the part-nationalization of big banks in the USA brought the highest ever daily gain for the SMI of 11.39%.
• 15 January 2015: The Swiss National Bank’s lifting of the minimum exchange rate of the Swiss franc against the euro. On that day, the SMI lost -8.67% which corresponds to the second-highest daily loss in the SMI’s history.

But the SMI has been heavily influenced by predominantly longer periods. Let’s have a look at the key cycles in the SMI:

• 1996 – 1998 Introduction of full electronic trading
  The marked rise in the SMI in these two years was a result of the changeover to full electronic trading. The Swiss stock exchange was the first exchange in the world to introduce this between 8 December 1995 and 16 August 1996.
• 2000 – 2003 Dotcom bubble (new economy)
  After the peak of the new economy boom, the SMI lost over 50% of its value between 2000 and 2003. It hit the bottom on 12 March 2003 by falling to around 3,675 points. This downturn was also overshadowed by two tragic events that happened in less than a month, namely
  • the attacks on the World Trade Center in New York, better known as 9/11
  • and the grounding of Swissair on 2 October 2001.

• 2007 – 2009 Financial crisis
  The US property crisis began in summer 2007 just after the SMI exceeded the 9,500 mark for the first time. In September 2008, the crisis reached its peak with the investment bank Lehmann Brothers filing for bankruptcy. This event resulted in the part-nationalization of a number of big banks, which also exacerbated the overindebtedness of some government budgets.
  

• 2011 – 2018 Period leading up to the all-time high
  It took years before the markets recovered to their 2007 levels. The SMI returned to its pre-financial crisis level in 2015, but it was only this year that it exceeded its previous peak from 2007 by reaching a new all-time high of 9,558 points on 5 January 2018.