On 1 February 2022, SIX Exchange Regulation (SER) published a revised version of the Disclosure Office Notice I/09 (Notice I/09) confirming its practice on the disclosure obligations regarding subscription rights and lock-up groups, but overhauling the easing provisions relating to the disclosure of relevant positions of both underwriters and lock-up groups in the prospectus.
By Alexander von Jeinsen / Benjamin Leisinger (Reference: CapLaw-2022-02)
1) Background
Pursuant to article 120 of the Financial Market Infrastructure Act (FMIA) anyone who directly or indirectly or acting in concert with third parties acquires or disposes of shares or acquisition or sale rights relating to shares of a Swiss listed company and thereby reaches, falls below or exceeds certain thresholds starting at 3% of the voting rights must notify this to the issuer and to the relevant stock exchange on which the equity securities are listed. Certain market practices in Swiss equity capital markets transactions result in recurring questions how these practices have to be handled in light of this disclosure obligation. These are namely:
– the Swiss corporate law requirement that shareholders receive subscription rights in capital increase transactions unless these are excluded on the basis of a shareholder vote by a qualified majority,
– the role of the underwriter syndicate in certain equity capital markets transactions and
– the Swiss market practice that parallel (vertical) lock-up undertakings result in the formation of a group of shareholders for purposes of article 120 FMIA (cf. article 12(1) of the FINMA Financial Market Infrastructure Ordinance (FMIO-FINMA)).
2) Former practice
In 2009, SER published a notice establishing a balanced and uniform handling of these questions; the notice was amended in 2018. In summary, until 1 February 2022, the following applied:
– Neither shareholders nor issuers had to notify the market or otherwise disclose a right to acquire / the obligation to issue shares stemming from the granting of subscription rights. Consequently, neither the sale of such subscription rights nor an undertaking to exercise them triggered any disclosure obligation under article 120 FMIA. However, an acquisition of subscription rights (as well as the subsequent sale of acquired subscription rights), triggered a disclosure obligation, if the resulting purchase or sale position reached, fell below or exceeded any of the relevant thresholds.
– Underwriters could fulfill their disclosure obligations (if any) resulting from their involvement in a capital increase transaction in the prospectus and the issuer did not have to publish the information via the publication platform of the SIX Disclosure Office.
– Lock-up groups could also fulfill their disclosure obligations in the prospectus and, under certain circumstances, lock-up groups could forego the full disclosure of all group members.
3) Revised practice and outlook
In the revised Notice I/09, SER upheld the established practice regarding the disclosure of purchase and sale positions stemming from subscription rights and the easement that, under certain circumstances, not all lock-up groups need to be disclosed (which in recent transactions would otherwise have resulted in a disclosure of several hundred group members). However, apparently as a result of the entry into force of the new Swiss prospectus regime under the Swiss Financial Services Act (FinSA), the SIX Disclosure Office overhauled the general possibility for underwriters and members of lock-up groups to fulfill their disclosure obligations (if any) in the prospectus while at the same time indicating that case specific exemption or easing requests under article 26 FMIO-FINMA may be granted. The fear was that under the new prospectus regime in the FinSA, the power to regulate disclosure requirements in prospectuses has been taken away from the SIX Swiss Exchange as a listing venue and is now exclusively governed by the FinSA and its implementing ordinance – with the SER in its capacity as prospectus reviewing body (as opposed to its function as Disclosure Office) being mandated to review and approve. By partly overhauling the former regime, SER aborts a well-established market practice without increasing transparency for market participants (although SER itself will likely have more transparency on the groups). It is noteworthy that according to SER “an important demand of the market is that (sub-)underwriters may disclose [relevant positions] in the prospectus and issuers can be exempted from the respective publication obligation“. SER thereby offers standardized rates for the relevant exemption request.
It remains to be seen how market participants will react to the new regime, in particular since the currently most common forms of equity capital markets transactions do not involve an underwriting in the traditional sense by the participating members of the banking syndicate and “best efforts” transactions do not trigger a disclosure obligation under article 120 FMIA. A new market practice of repeated, almost identical exemption requests is certainly not in the interest of market participants (other than maybe the lawyers drafting them). The difficult challenge will certainly be to meet the deadlines of article 21 FMIO-FINMA to file an exemption request. The deadline is 15 trading days prior to the date triggering the disclosure duty so that the SIX Disclosure Office has 10 trading days time to decide on the exemption request and the Swiss Financial Market Supervisory Authority FINMA has 5 trading days to exercise its power to decide itself on the matter. Without the general possibility to disclose underwriters and lock-up groups in the prospectus, especially volume underwritings, e.g. in urgent recapitalization transactions, will have to be carefully timed without the option to get deal certainty by executing underwriting/purchase agreements early in the process.
Alexander von Jeinsen (alexander.vonjeinsen@advestra.ch)
Benjamin Leisinger (benjamin.leisinger@homburger.ch)