Switzerland is a major centre not only for investment but also for private banking, in particular wealth management. Asset management and investment advice are important businesses for Swiss banks. Swiss banks are estimated to have a 30 per cent share of the world market for cross-border wealth management business. As of 31 March 2007, the assets managed by Swiss banks amounted to an aggregate of CHF 4.8 trillion. Switzerland’s low nominal interest rates, comparatively low transaction costs and large base of private and institutional investors attract many high-quality foreign issuers of equity and debt securities and derivative instruments.
As Switzerland is not a member state of the European Union or the European Economic Area, it is not bound by EU capital markets legislation. This leaves Switzerland with a certain autonomy to regulate its capital market as it sees fit.
The supervisory authority for banks, stock exchanges, securities dealers and collective investment schemes, the Swiss Federal Banking Commission (FBC), has a broad remit and the power to issue rules and regulations to flesh out legislation. The FBC’s decisions are subject to appeal to the Swiss Federal Administrative Court whose judgments may be reviewed by the Swiss Federal Supreme Court. There is, however, no regulatory authority for public offerings of securities (other than investment schemes) in Switzerland (see section 2.1).
Currently, there is no comprehensive federal act that would regulate the Swiss capital market in its entirety. The most important pieces of legislation are the Federal Stock Exchange Act (the SESTA), which applies to Swiss exchanges, securities dealers, stock exchange trading and takeover offers, the Federal Banking Act (the Banking Act) and the Federal Act on Collective Capital Investments (CCIA) (see section 6). The issuing of equity and debt securities is subject to the Federal Code of Obligations (the CO), while the listing of securities at the main Swiss exchange, the SWX Swiss Exchange (the SWX) is governed by the SWX listing rules (the SWX LR).
In Switzerland, there are two major regulated exchanges, the SWX and the EUREX (European Exchange). The SWX is the principal trading platform in Switzerland for equity and debt securities. EUREX was created in 1998 by the merger of DTB (Deutsche Terminbörse) and SOFFEX (Swiss Options and Financial Futures Exchange) and provides a fully automated trading platform for standardised derivative instruments, such as traded options and financial futures. Derivative instruments may, however, also be listed at the SWX and have shown a substantial growth over the last couple of years. In 2006, the turnover of the SWX amounted to CHF 1.979 trillion; approximately 12,143 securities were listed at the SWX as of beginning of 2007 (split up into approximately 386 equity securities, 1,306 debt securities and 10,369 derivatives). Out of the 344 listed companies, approximately two-thirds are Swiss. EUREX is the world’s leading derivatives exchange with 1.526 billion contract trades in 2005. This corresponds to a daily average trading volume of 6.01 million contracts.
Financial instruments specifically tailored to the requirements of an individual counterparty are not considered securities under the SESTA. Since Switzerland has no compulsory exchange trading rule (Börsenzwang), both listed and unlisted securities may also be traded over the counter (OTC). In addition, securities derivatives, which are not standardised for mass trading but tailor-made, are also traded OTC. The OTC markets are not subject to any specific supervision or regulation. In these markets, the rights and duties of the market participants are subject to the general rules of contract law and obligations based on the participant’s special status (eg securities dealer in the meaning of the SESTA).
2. FUNDRAISING
Compared with other jurisdictions, the process of offering equity or debt securities in Switzerland is fairly informal, due to a lenient regulatory framework. A more comprehensive regime applies if such securities are listed at the SWX (see section 3), or if units of collective investment schemes are offered or distributed (see section 6). In particular, as long as equity and debt securities are not listed at the SWX, their public offering is not subject to authorisation by, or registration with, any governmental or self-regulatory body (except that newly-issued shares of Swiss companies need to be registered with the competent commercial register, which is no more than a formality).
Debt securities are normally issued in bearer form, whereas equity securities are in either bearer or registered form. There are no foreign exchange restrictions or controls applying to the offering of equity or debt securities in Switzerland.
In case of a public offering of equity or debt securities in Switzerland, the issuer is obliged by law to prepare an issuance prospectus in accordance with the CO (Emissionsprospekt). The issuance of certain debt securities, in particular those issued by non-Swiss issuers and denominated in Swiss francs, may also be subject to the ‘Directive on Notes of Foreign Borrowers’ of May 2001 of the Swiss Bankers Association. Even though, in practice, derivatives are usually offered publicly on the basis of an information memorandum or similar offering document, the disclosure requirements of Swiss law do not per se apply to the issue of derivatives. Since 1 January 2007, special rules apply to the public offering of structured products (see section 6.5).
Unlike other jurisdictions, Swiss law does not contain a clear definition of a public offering of equity or debt securities or of a private placement exemption for the offering of such securities. A public offering of equity or debt securities is generally viewed as an offering made to an indefinite number of investors. An offering is deemed to be private if it is addressed to a limited circle of persons. There is no numerical statutory threshold not to be exceeded in order to keep the private character of a placement. However, in practice, a safe harbour is often assumed for offerings addressed to a maximum of 20 selected (‘handpicked’) potential investors. The focus in this context is always on the end-investors rather than on the financial intermediaries such as the underwriters.
According to the CO, the following information must be disclosed in an issuance prospectus:
It follows from this list that the statutory disclosure requirements for a Swiss issuance prospectus are relatively basic. In recent years, however, issuers have started to include additional information in their issuance prospectuses in order to meet the expectations of investors (who are often used to more comprehensive international standards) and to avoid prospectus liability claims (see sections 2.3 and 2.4).
Although not explicitly stated in Swiss law, the usual view is that an issuance prospectus must only be updated until the end of the subscription period when issuing equity or debt securities. In the Swiss market, however, underwriting agreements for equity securities often provide that the updating duty lasts until the closing date.
The applicable Swiss rules on prospectus liability set forth, in essence, that anyone who intentionally or negligently participates in the drafting of an incomplete, incorrect or misleading issuance prospectus is liable for damages, provided that there is a direct causal link between the misstatement or omission in the prospectus and the damage suffered by the investor. A prospectus is incomplete if the statutory disclosure requirements are not met, ie, if there is no prospectus at all where required by law, or if it contains only part of the required information. It is misleading if facts material to the investment decision are omitted.
Potential plaintiffs in prospectus liability suits are all persons, in particular the initial subscribers and subsequent purchasers of the equity or debt securities, who suffered damages as a result of a violation of the disclosure requirements. Potential defendants include the issuer itself, its directors and senior (and potentially other) officers, the auditors, the underwriters and the advisers to any of them.
Swiss law does not detail the specific measures to be taken to ensure that the issuance prospectus is not incomplete, incorrect or misleading. In practice, the due diligence procedure for the issue of straight debt securities is rather simple, contrary to the due diligence procedure for the issue of equity securities (including equity-linked debt securities such as convertibles), which follows international standards. As a general guideline, the issuer must ensure that the process followed in the preparation of the issuance prospectus is a sound one. This includes mechanisms ensuring (i) that all information is provided which is required by law and which a reasonable investor may expect to be disclosed in the prospectus in light of his or her potential investment, (ii) the correctness of the information and (iii) a presentation of the information giving a true and fair view of the situation of the issuer.
Persons who are potentially subject to a prospectus liability may rely on advice given by experts such as lawyers and accountants to the extent reliance is reasonable.
Based on the Federal Act on Private International Law (PILA), prospectus liability claims relating to a public offering of equity or debt securities in Switzerland may be filed with the Swiss courts at the place where the issue of the securities took place. This place of jurisdiction is mandatory.
The PILA further provides that claims arising from the public issue of equity or debt securities by means of a prospectus, circular or similar publication are governed by the law applicable to the issuer or by the law of the state where the offering was made (ie, Swiss law in case of an offering in Switzerland). This provision offers a potential plaintiff in a prospectus liability suit the right to choose the more favourable law and has the effect that a prospectus prepared in connection with a cross-border issue of equity or debt securities has to follow the standards of the jurisdiction of the issuer or, if more stringent, of the place where the securities are being offered.
3. SWX LISTING
The SWX, the main stock exchange in Switzerland (see section 1), has six segments: (i) the main segment, used for listing and trading of most exchange-traded products (ie, equity securities, bonds and derivatives); (ii) the SWX local caps segment; (iii) the investment companies segment; (iv) the real estate companies segment; (v) the investment funds segment (including exchange-traded funds); and (vi) the EU compatible segment. Since 2001, the Swiss blue chip companies comprising the Swiss Market Index (SMI) are listed at the SWX, but traded at the virt-x Exchange Limited (virt-x), which is located in London, held and controlled by the SWX and supervised by the UK Financial Services Authority.
The listing of securities at the SWX is governed by the SWX LR and further implementing rules and regulations. The SWX LR are administered by the SWX Admission Board which also decides on the admission of securities and supervises the issuers’ compliance with the continuing obligations following listing. In addition, the SWX Admission Board may rule on delistings and impose sanctions for violations of the SWX LR in certain cases.
In connection with the implementation of the EU Prospectus Directive, the SWX decided, in 2005, to split the virt-x trading platform into two regulatory segments, an ‘EU Compatible Segment’ and a ‘UK Regulated Segment’ (which is part of the main segment). SMI companies have the option to choose either of these two segments. The EU Compatible Segment provides companies traded on it with the opportunity to benefit from the advantages of the harmonised European capital market (‘EU passport’). Listing in this segment has to comply with the ‘Additional Rules for the Listing on the SWX EU Compatible Segment’, which largely reflect the rules of the Prospectus Directive and its implementing legislation. Issuers in the EU Compatible Segment have to comply with the EU Market Abuse Directive once they have published the first prospectus under the new regime. The UK Regulated Segment, in essence, preserves the previous status of a mainly Swiss regulation.
In order to be authorised to list its securities at the SWX, an issuer (or, alternatively, a third party acting as guarantor) must have existed as a company for at least three years and presented its annual accounts for the three complete financial years preceding the submission of the listing application. Exemptions from this three-year rule are available, inter alia, for companies intending an initial public offering, for investment companies, for real estate companies, and for issuers of asset-backed securities.
In addition, the issuer’s capital resources (ausgewiesenes Eigenkapital) must amount to at least CHF 25 million. Special rules apply to issuers of derivative securities and to sovereign issuers.
The securities to be listed must have been issued in accordance with the law to which the issuer is subject. In addition, equity securities must have reached an adequate level of distribution by the time of listing, meaning in essence that at least 25 per cent of the issuer’s outstanding equity securities (corresponding to at least CHF 25 million) are held by the public.
New SWX rules governing the listing of debt securities took effect on 1 February 2005. The main purpose of these rules is to make the SWX more attractive to foreign issuers of bonds and notes (mainly Eurobonds). Bonds and notes may now be listed at the SWX without any restrictions as long as their terms and conditions are subject to the laws of any OECD member state (or of any other jurisdiction recognised by the SWX upon request). In addition, there is no requirement anymore to provide for a place of jurisdiction in Switzerland in the terms and conditions, provided that a place of jurisdiction has been designated in the country whose legal system is applicable to the bonds or notes (for prospectus liability claims, see however sections 2.3 and 2.4). Further, the new rules provide that issuers may submit issuance programmes (ie, MTN-programmes subject to Swiss or foreign law) for examination and approval by the SWX Admission Board. Once such an issuance programme has been approved by the Admission Board, it remains valid for 12 months; the listing of tranches under such programmes merely requires the submission of a pricing supplement.
An issuer intending to have its equity, debt or derivative securities listed at the SWX is required to prepare and publish a listing prospectus (Kotierungsprospekt) in either German, French, Italian or English. Such a prospectus must provide sufficient information for knowledgeable investors to reach an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the issuer, as well as the rights attaching to the securities. In addition, any special risks need to be disclosed.
The listing prospectus must contain information on, inter alia, the issuer, the guarantor (if any), the securities, and the persons or companies responsible for the contents of the prospectus. The precise scope of the information to be furnished is set out in Annex I to the SWX LR. In addition, the listing prospectus must contain the financial information required by the SWX LR. In the case of equity securities, as a rule, financial information for the three business years prior to the listing must be included, and, if more than nine months have passed since the last balance sheet date, the issuer must also include semi-annual interim financial statements. For the listing of debt securities, financial information for only two previous business years is required, and there is no obligation to provide interim financial statements. As to the accounting standards acceptable to the SWX, see section 4.1.
There are certain relief provisions. For example, no prospectus is required if equity securities are to be listed which lead to an increase of the issuer’s share capital of less than ten per cent or which have been issued in connection with an employee stock option plan.
The listing prospectus must be published no later than on the day of the listing. The issuer has to publish a listing notice in German and French in two or more newspapers with national circulation, referring to the prospectus which is available free of charge in the form of a brochure. However, for bonds and derivatives, the SWX offers the opportunity to post the listing notices on its webpage (www.swx.com).
Listing at the SWX requires a listing application to be lodged with the SWX Admission Board in either German or French, normally no later than one month prior to the date scheduled for listing. In addition, the issuer must provide a declaration that the listing prospectus and listing notice are complete, and that there has been no material deterioration of its financial situation since the publication of the listing prospectus.
Following submission, the SWX Admission Board examines the application on the basis of the documents provided, and approves it if the SWX LR are complied with. Its review is merely formal in the sense that it only reviews the completeness, but not the correctness of the information submitted to it.
Special rules apply to issuers whose equity securities are traded in the EU Compatible Segment (see section 3.1). Their listing prospectuses need to be approved both by the SWX Admission Board and the UK Financial Services Authority (or another EU supervisory authority as chosen by the issuer).
Debt securities and derivatives intended for listing may be admitted provisionally to stock exchange trading. Such provisional trading may begin three business days after the respective application has been lodged and takes place in a special segment. Subsequently, the formal listing application needs to be lodged within two months upon commencement of provisional trading. For bonds and derivatives, the listing procedure can be done through electronic means (‘internet-based listing’), in which case provisional trading can begin the day after submitting the respective application.
In 2005, the SWX created a new ‘Sponsored Segment’ which enables SWX participants (socalled ‘sponsoring securities dealers’) to initiate trading in equity securities of domestic or foreign issuers that have a primary listing on an SWX-recognised exchange. Admission to trading in this segment does not constitute a listing, so no listing prospectus is required. Each sponsoring securities dealer may lodge an application for the admission of equity securities to trading in this segment. If and to the extent disclosure and reporting requirements apply, they have to be complied with by the relevant sponsoring securities dealer, and not by the issuer. The rules on ad hoc publicity (see section 4.2) are not applicable.
4. ONGOING COMPLIANCE REQUIREMENTS
The most important financial disclosure obligations are set out in the CO and the SWX LR. Further disclosure rules apply to banks and securities dealers.
Under the CO, a company has to prepare an annual report, which includes, inter alia, the audited annual consolidated (if required) and the statutory company financial statements (including profit and loss statement, balance sheet and notes). In addition, the CO requires Swiss companies that are listed on a stock exchange to disclose in their financial statements any shareholders whose participation exceeds five per cent of the voting rights (see also section 4.4). This financial information is available to the shareholders of Swiss companies but, as a matter of Swiss law, not to the holders of debt securities of Swiss or non-Swiss issuers unless the debt securities are listed. However, this information right is, at least with respect to certain debt securities of non-Swiss issuers, indirectly warranted through the ‘Directive on Notes of Foreign Borrowers’ of the Swiss Bankers Association.
Further, companies whose securities are listed at the SWX (irrespective of whether they are incorporated in Switzerland or not) have to comply with the financial disclosure obligations of the SWX LR. Since 1 January 2005, Swiss issuers whose equity securities are listed at the SWX main segment must use International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP). Swiss issuers of securities listed on the Swiss local caps segment, listed investment companies, listed real estate companies and issuers of listed debt or derivative securities continue to be allowed to use Swiss GAAP FER, the Swiss accounting standards. Foreign issuers whose equity, debt or derivative securities are listed at the SWX may continue to use their home country accounting standards such as IFRS, US GAAP, EU and EEA countries’ accounting standards or the accounting principles of Australia, New Zealand, Japan, Canada and South Africa (and, in case of foreign issuers of debt securities only, certain other jurisdictions provided the respective accounting principles provide for a ‘true and fair view’ in accordance with the SWX LR).
Annual financial statements of listed companies must be submitted to the SWX no later than four months after the close of the respective financial year. In addition, issuers of equity securities have to prepare semi-annual financial statements, which must be submitted to the SWX no later than three months after the close of the respective period or, in case of investment companies, two months after the close of the respective period.
The SWX LR further provide for an ad hoc publicity requirement. An issuer must inform the market of any price-sensitive facts within the realm of its activities not being in the public’s knowledge. Facts qualify as price-sensitive when they are capable of triggering a significant price change.
According to the SWX Admission Board, occurrences which usually require immediate disclosure include:
The issuer has to disclose price-sensitive facts as soon as it becomes aware of their existence. The release may only be deferred if such facts are based on a plan or decision of the issuer, and if disclosure would prejudice the issuer’s legitimate interests. In this case, the issuer must make sure that the information is kept confidential.
The SWX Corporate Governance Directive requires Swiss issuers to disclose important information on the management and control mechanisms at the highest corporate level in their annual report. The directive also applies to issuers not incorporated in Switzerland but having their securities listed only at the SWX and not in their home country.
Issuers shall provide information, inter alia, on broad categories such as group and capital structure, board of directors, auditors, shareholder participation rights, change of control or defensive measures, information policy etc in accordance with the principle ‘comply or explain’: If the issuer decides not to disclose certain information, it must state the reason(s) why.
As of 1 January 2007, an amendment to the CO on the disclosure of board and management compensation of listed companies became effective. It essentially provides that the issuers have to disclose the compensations, shareholdings and loans in an aggregate amount for each of the board of directors and the senior management. In addition, the compensation packages of each of the members of the board as well as the highest total compensation package among the members of senior management has to be disclosed separately. That information is to be included in the (audited) notes to the financial statements. The new ‘hard law’ replaces the previous requirements under the SWX Corporate Governance Directive.
Article 74a SWX LR, in effect since 1 July 2005, imposes obligations on the listed issuers to disclose transactions concluded by the members of the board of directors and senior management in the respective issuer’s equity securities, convertible and purchase rights thereon and other financial instruments whose price is largely affected by the issuer’s own equity securities.
Each issuer has to ensure that its members of the board and senior management report such transactions to the issuer within two trading days. If the overall amount of the transactions concluded by an individual in one calendar month exceeds CHF 100,000, the issuer has to notify the SWX, within two trading days, of the name and corporate function of the respective person and the specifics of the sale or purchase transaction. The SWX will then publish the report on its website but without mentioning the individual’s name. If the per person threshold amount of CHF 100,000 is not exceeded in a given calendar month, those transactions are solely subject to regular monthly reporting to be filed by the issuer with the SWX.
Under the SESTA, a shareholder has to disclose its shareholdings if it acquires or sells shares of a company incorporated and listed in Switzerland and thereby attains, falls below or exceeds the percentages of 5, 10, 20, 33.33, 50 or 66.66 of that company’s voting rights. This disclosure obligation also applies to beneficial owners indirectly acquiring or selling stakes in Swiss companies listed in Switzerland, and to shareholders acting in concert or as an organised group. In the case of a group (eg, a group of companies), its holdings can be disclosed in the aggregate and do not need to be specified by each individual group member (black-box-principle). Furthermore, certain derivative transactions (such as the acquisition or disposal of call options and conversion rights, and the granting of put options) must also be disclosed if they reach, fall below or exceed the statutory thresholds, and if their terms provide for or allow physical settlement. In a takeover situation, the current law allows a potential bidder to acquire up to 4.9 per cent in shares, and, in addition, 4.9 per cent in call options without disclosure. Therefore, a bidder could control almost ten per cent of the Target Company’s shares before a disclosure requirement in triggered. The Swiss federal parliament is currently reviewing the five per cent threshold. There is a proposal which could be enacted as soon as the second half of 2007 to lower the threshold to three per cent of the voting rights and to include both shares and options together in the calculation.
The obligation to notify is triggered as soon as the (contractual) commitment to acquire or sell the shares is entered into. Hence, an actual transfer of share ownership is not required. The shareholder must notify the Disclosure Office of the SWX and the relevant company within four trading days following the triggering event. The company in turn has the duty to publish the received information within another two trading days. Non-compliance with the requirements may be sanctioned by way of criminal fines.
5. INSIDER TRADING AND MARKET MANIPULATION
According to the Swiss Federal Criminal Code (‘Criminal Code’), the abuse of important confidential information concerning a company listed at a Swiss exchange by a person having access to such information due to a professional or official function and being aware of the confidential nature of the information (‘insider’), or by a tippee who has received such information from an insider, is a criminal offence if it can be foreseen that the abused information will significantly influence the price of securities traded on a Swiss exchange. Financial intermediaries subject to the FBC’s supervision (see section 1) and companies whose securities are listed on a Swiss exchange will have to comply with further obligations once the FBC’s Anti-Market Abuse Circular enters into force, a draft of which has been published for comments in December 2003.
Members of the board of directors, managers and auditors of a company or its controlling company or a company under its control can all qualify as insiders. Shareholders of a company are not deemed to be insiders unless they are de facto board members due to their effective influence on the company. Persons who actually create the confidential information (eg, a person intending to take over another company; a company intending to buy its shares back) do not qualify as insiders with regard to that specific information. Agents of the company such as lawyers, tax consultants, financial advisers and underwriters may also qualify as insiders if they gain access to confidential information by virtue of their mandate. Any person who obtains confidential information from an insider may be punished as a tippee if they abuse that information.
Insider trading necessarily relates to confidential information regarding certain facts, as opposed to mere speculation, projections or rumours. Such facts include the issue of new equity securities, share buybacks, mergers, takeovers, restructurings and similar events of comparable significance, ie, facts having a significant influence on the company’s capital or economic structure. As of today, profit warnings are exempted from being confidential information within the meaning of the insider trading provisions, however, it is expected that this exemption will be abandoned. The information must be confidential and its disclosure must presumably and significantly influence the price of the securities on the exchange.
The offence is completed if the confidential information is abused by the insider or the tippee for a financial profit. However, insider trading is only punishable if the insider and/or the tippee wilfully and knowingly abuse(s) the confidential information with the intention of enriching himself or herself or another person. Negligent behaviour is not a criminal offence under the respective provision of the Criminal Code.
Pursuant to the Criminal Code, two types of behaviour are punishable as market manipulation if made with respect to securities traded at a Swiss exchange:
Other behaviour by which the price of securities may be influenced, intentionally or unintentionally, does not qualify as market manipulation (eg, price stabilisation measures which do not amount to one of the two criminal offences described above, sham offerings and immobilisation of a certain amount of securities (‘parking’). Such behaviour may, however, be prosecuted as fraud.
Any individual may qualify as a market manipulator. Market manipulation is only a criminal offence if the perpetrator acts wilfully and knowingly with an intent to both significantly influence the price of securities and make an illegal profit.
6. COLLECTIVE INVESTMENT SCHEMES AND STRUCTURED PRODUCTS
In early 2006, close to 1,000 Swiss investment funds and more than 4,000 foreign collective investment schemes have been licenced for public distribution in Switzerland by the FBC. In addition, there is a substantial number of foreign collective investment schemes that are privately placed in Switzerland and, therefore, exempt from registration. This makes Switzerland one of the most important markets for collective investment schemes in the world.
The majority of collective investment schemes currently registered in Switzerland are domiciled abroad. This is due to facts such as the lack of the European passport for UCITS-compatible Swiss-based funds (given that Switzerland is not a member of the EU), as well as the unavailability, until recently, of certain types of fund structures in Switzerland, such as investment companies with variable share capital or limited partnerships. Against this background, the Swiss legal framework governing domestic and foreign investment funds has been totally revised in order to strengthen Switzerland’s competitive position as a jurisdiction not only for the distribution, but also for the establishment of collective investment schemes. The new CCIA entered into force in January 2007.
The new CCIA extends the scope of supervision to basically all types of domestic collective investment schemes, while at the same time providing for new types of investment vehicles. It fundamentally distinguishes between open-end and closed-end collective investment schemes, depending on whether or not an investor has the right to have its shares or units redeemed at their net asset value. Open-end investment schemes include contractual investment funds and the new SICAV structures, while closed-end investment schemes consist of investment companies structured as SICAFs, as well as limited partnerships for collective capital investments (LPs). SICAFs are, however, not subject to the CCIA if they are either listed at a Swiss exchange or reserved for qualified investors.
While open-end investment schemes are available for all types of investors, ie both for retail investors and qualified investors, non-listed SICAFs as well as LPs are only open to qualified investors, such as regulated financial intermediaries (banks, securities dealers and fund management companies), insurance companies, pension funds, and high net worth individuals.
Although in principle applicable to all types of collective investment schemes, Swiss inhouse collective investment portfolios of banks and securities dealers as well as Swiss investment foundations, ie a specific type of collective investment vehicle for pension funds, remain outside the scope of the CCIA. Public advertisement for in-house collective investment portfolios continues to be prohibited.
One of the key novelties of the CCIA consists of the introduction of a new form of corporate collective investment scheme with variable share capital. In essence, the Swiss SICAV is based on Swiss stock company law, however with a number of important exceptions in order to meet the needs of a corporate investment scheme with a variable share capital, such as in particular the provisions on capital increases and decreases. The purpose of the SICAV is confined to the collective management of its own assets. According to the CCIA, the minimum share capital upon incorporation shall amount to CHF 250,000. Shares will have no nominal value and need to be fully paid in. The CCIA further provides that there are two categories of shares, promoter shares and investor shares. Each share carries one vote, except that the promoters have the exclusive right to decide upon the SICAV’s dissolution. Like in other jurisdictions, Swiss SICAVs are construed either as self-managed or as not self-managed.
A new closed-end collective investment scheme introduced by the CCIA is the (Swiss) LP. The Swiss LP is exclusively conceived for investments in risk capital (private equity) and reserved for qualified investors. To a large extent, the applicable provisions follow the rules of Swiss company law on the (ordinary) limited partnership. However, while in the ordinary LP, the general partner (ie the partner with unlimited liability) needs to be an individual, in an LP for collective investments the general partner must be a stock company incorporated in Switzerland.
The regulation of foreign collective investment schemes did not fundamentally change under the CCIA. In essence, the offer and distribution of foreign open-end or closed-end investment schemes in or from Switzerland, if effected by means of public solicitation, is subject to prior authorisation from the FBC.
In the absence of public solicitation, foreign collective investment schemes may be offered in Switzerland without registration. As a rule, there is no public solicitation if a foreign investment fund is exclusively offered to certain types of qualified investors, such as inter alia financial intermediaries, insurance companies, pension funds, and high net worth individuals as defined by the CCIA and its implementing ordinance.
In turn, foreign collective investment schemes that are publicly offered in or from Switzerland must be registered with the FBC. This requires, among other things, adequate supervision in the investment scheme’s home country, which to date has been acknowledged by the FBC for investment schemes domiciled in EU and EEA member states, Jersey, Guernsey, and the US. Foreign investment schemes qualifying as UCITS are subject to simplified registration proceedings.
The Swiss market for structured products, such as index and basket certificates, capital protected notes and reverse convertibles, has experienced enormous growth in recent years. The CCIA provides that the public offering of structured products is not subject to collective investment scheme legislation if a number of conditions are met. Inter alia, the issuer of the structured product, or alternatively its guarantor, or alternatively its distributor needs to be subject to adequate supervision in Switzerland or certain foreign jurisdictions (see section 6.5). Furthermore, a simplified prospectus is required, describing the key features and risks of the product, and containing a disclaimer to the effect that the product is not subject to supervision by the FBC.
7. PUBLIC TAKEOVERS
Public takeover offers are governed by the SESTA. The guiding principles are transparency, equality of treatment, the proper functioning of the capital markets and in particular the protection of the minority shareholders. Compliance with the takeover rules set by the SESTA and its implementing ordinances is ensured by two supervisory bodies: The Federal Takeover Board (TOB), who is authorised to review all public takeover offers subject to the SESTA and to issue non-binding recommendations to the concerned parties, and the FBC, who may issue binding administrative orders if the TOB’s recommendations are not complied with.
SESTA only applies to public takeover offers in relation to equity securities in Swiss target companies whose equity securities are listed on an exchange in Switzerland.
The relevant SESTA provisions regulate both public takeover offers (tender offers) by shareholders or other third parties and public offers by a company to repurchase its own shares (buyback offers):
Under the SESTA, anyone who directly, indirectly or acting in concert with third parties acquires shareholdings in a Swiss target company which exceed the threshold of 33.33 per cent of the voting rights is obliged to make a takeover offer to the remaining shareholders in order to acquire all listed equity securities of the company.
However, there is no obligation to make an offer if the threshold of 33.33 per cent is exceeded by the acquirer if and to the extent the articles of association of the target company provide otherwise. Thus, the shareholders’ assembly of a company may, by amendment to the articles of association increase the statutory threshold triggering the obligation to make an offer from 33.33 per cent of the voting rights up to a maximum of 49 per cent (‘opting-up’), or even entirely abolish such threshold (‘opting-out’).
Today, approximately 23 per cent of Swiss companies listed on the SWX (but no SMI company) make use of opting-out clauses, while approximately five per cent (including one SMI company) chose an opting-up clause. This information is publicly available via the SWX.
The procedure of a public takeover can be summarised as follows:
First, an offeror must prepare a prospectus containing detailed information on its offer (in particular on the offeror, the target company, the price, the type of financing, any (permissible) condition to the offer etc). The offer is then launched by publishing the prospectus or a summary of it (with a reference to the prospectus) in several newspapers and in one of the electronic media specialising in stock market data. After a cooling-off period of ten trading days, the offer normally remains open for 20 up to 40 trading days. Thereafter, the interim result of the offer has to be published and an additional acceptance period of ten days starts in case the offer was successful. This is followed by the calculation and publication of the result of the offer and of its settlement. If the offeror at that point holds more than 98 per cent of the voting rights of the target company, it may within three months petition the competent court to cancel the remaining outstanding equity securities against consideration (‘squeeze-out’ procedure). If the offeror has acquired 90 per cent but not 98 per cent of the voting rights of the target company, it may consider initiating a squeeze-out merger according to the new Federal Merger Act of 2004.
Consideration can be effected in cash and/or equity securities; the offer may also provide for the shareholders’ right to choose the type of consideration. In case of a mandatory takeover bid (see section 7.3), however, the mechanism to determine the offer price is defined by mandatory law. It shall at least correspond to the average market price during the 30 trading days preceding the offer, and shall not be lower than 25 per cent of the highest price paid by the offeror for equity securities of the target company in the preceding 12 months. Within these statutory limits, an acquirer may pay a premium for the acquisition of a controlling block of shares. Following the publication of the offer, the offeror may still buy equity securities of the target company on the exchange. It is, however, obliged to notify the TOB and the SWX of every buy or sell transaction. Moreover, if the offeror, within a period of six months following the expiration of the additional acceptance period, acquires additional equity securities on the exchange for a price which is higher than the price offered in its public offer, it is obliged to offer that better price to all shareholders (‘best price rule’).
While the implementation of preventive defensive measures is admissible to a large extent prior to the launch of a tender offer, the SESTA prevents the board of directors, but not the shareholders’ meeting, of a target company from resolving on new defensive measures thereafter. In addition, from the moment an offer (or its prior announcement) is published until the result is announced, the target company must notify the TOB in advance of any defence measures it is considering.
As a general principle, the board of directors of the target company may not, during the offer, enter into any transactions having the effect of altering significantly the assets or liabilities of the target company. Consequently, measures such as ‘scorched earth’ (ie, the sale or acquisition of assets at a value or price of more than ten per cent of the company’s balance sheet total), the sale or pledge of ‘crown jewels’ (ie, assets that are explicitly designated by the offeror to constitute the main subject matter of the offer) or the granting of ‘golden parachutes’ are not permissible. A buyback of own shares by the target company from the offeror against a premium (‘greenmail’) and the ‘Pac-Man defence’ (ie, the launch of an offer by the target company to acquire the attacking offeror) may only be permissible under certain conditions and if these measures do not significantly affect the assets of the target company.
The general assembly of shareholders, however, may still resolve on defensive measures once the offer has been submitted. The board may thus implement the measures authorised by the shareholders’ assembly, provided that such authorisation is unambiguous and does not amount to a carte blanche for any defence measures by the board of directors.
As Switzerland is not a member of the EU, the EU directive on takeover bids (European Parliament and Council directive 2004/25/CE regarding takeover bids) will not be implemented into Swiss law. Although there is a general tendency to make Swiss law consistent with EU law, there are substantial differences between Swiss law and the directive on takeover bids. For instance, whereas under the directive on takeover bids the share price in a mandatory offer shall amount to the highest price paid by the offeror for shares of the target company in the preceding 12 months, Swiss law states that a premium of up to 25 per cent for the acquisition of a controlling block of shares prior to the offer is admissible. As another example, a procedure to ‘squeeze out’ remaining minority shareholders by cancelling the outstanding equity securities in publicly held companies in the wake of a public tender offer can be initiated pursuant to the directive on takeover bids if the offeror holds more than 90 per cent of the equity securities of the target company. Under Swiss law, in turn, the acquisition of 98 per cent of the equity is required if the offeror wants to achieve the same goal under the takeover rules.
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