In its annual report, the Disclosure Office of SIX Exchange Regulation informed the public about its practice and provided an overview of its activities in the reporting year 2022. It further developed its disclosure practice by issuing new recommendations, some of which are summarized herein. In 2022, the Federal Supreme Court also issued a decision relevant to disclosure law confirming the practice of the Disclosure Office.

By Joey Weber (Reference: CapLaw-2023-24)

1) Recommendations

a) Indirect participation: Recommendation OLS-03/22-A: Facilitation in connection with changes in reported information and disclosure by adirect participants

The applicant in Recommendation OLS-03/22-A was a company providing asset management services worldwide. They manage assets for clients and investment funds in various countries. They are subject to Swiss disclosure requirements but have technical difficulties identifying and reporting direct holders of positions by using their automatic systems. They argued that manual monitoring of these positions is impractical and cumbersome and that the entities that hold the legal title to the funds’ assets do not have any decision-making power regarding voting or disposition of shares. They requested an exemption from direct holder disclosure because knowing the identity of these entities would not provide significant benefit to investors and would hinder market transparency due to the complex disclosures within short periods of time. The Disclosure Office agreed with the applicant, considering the potential negative impact of a large number of reports without material content. It stated that a relaxation of disclosure requirements is warranted in this case to balance the interests of market participants and the applicant. The exemption would apply to sponsored funds that are not authorized for sale and would reduce the need for disclosure by direct holders, which would reduce the administrative burden on both the applicant and issuers. The Disclosure Office, accordingly, shared the applicants’ view, that the exemption should also apply to funds covered by article 18(2) of the FINMA Financial Market Infrastructure Ordinance (FMIO-FINMA).

The applicants were granted relief from the reporting obligation pursuant to article 18(1), article 18(4) and article 22(3) FMIO-FINMA to the extent that only the aggregated group positions had to be disclosed, but no direct shareholders pursuant to article 11(b) in connection with article 22(1)(e) and 22(3) FMIO-FINMA. However, an obligation to notify arises if a collective investment scheme within the meaning of article 18(2)(a) FMIO-FINMA individually reaches, exceeds or falls below a threshold. This obligation also applies if the holdings of the group’s independent fund management companies are consolidated with the holdings of the group. The fact that an approved collective investment scheme under CISA individually reaches, exceeds or falls below a threshold is to be integrated in the consolidated notification of the group of companies, if the fund management company decides to consolidate its holding with the holding of the group of companies. The Disclosure Office also required a legend to be included as part of respective disclosure notifications on the electronic publication platform.

b) Capital market transactions: Recommendation OLS-04/2022-A: Facilitations and exemptions in connection with legal transactions regarding a capital increase

In order to partially finance a transaction in which the applicant in Recommendation OLS-04/2022-A was to acquire assets of company [C], the applicant planned to create new shares from authorized capital. The new shares were to be subscribed by company [D] as part of the capital increase and sold back to the applicant on the same day. In order to partially pay the purchase price for the assets of company [C] to be acquired as part of the transaction, the newly issued shares of the applicant were to be transferred to company [C] within a few days.

The applicant requested the Disclosure Office to release it from the reporting obligation regarding the newly issued treasury shares, which were to be held for only a few days prior to the transfer to company [C]. The applicant sought an exemption from the notification duty for the purchase of these shares, as they would only be held temporarily before the completion of the transaction. The applicant argued that the lack of transparency regarding the interim shareholding would not impact control of the company and that it could not exercise its voting rights. The Disclosure Office, however, rejected the argument that the issuer could not exercise the voting rights with respect to its own shares. It stated that the legislator specifically made the companies themselves subject to the disclosure of shareholdings and that, in principle, the market participants have an interest in knowing how many of its own shares a company holds – regardless of whether the voting rights can be exercised. But the Disclosure Office agreed that an exemption can be granted, considering the short-term nature of the transaction and the fact that a disclosure notification of the issuer in own shares as purchase position would be reflecting a situation that is a mere technicality to ensure a smooth closing of the transaction. It stated that it can be assumed that the market might not understand a possible disclosure notification of the issuer regarding the purchase of newly issued shares and that such a publication could lead to a considerable amount of explanation. 

c) Capital market transactions: Recommendation OLS-05/2022-A: Facilitation for underwriters in connection with an acquisition of shares for stabilization purposes in an IPO (capital increase)

Recommendation OLS-05/2022-A was requested, and issued, in connection with an IPO in which all outstanding and a number of newly issued shares should be listed. For stabilization purposes of the new shares of the issuer to be issued in the course of the PO, the applicants planned to enter into a share lending agreement with the parent company of the issuer. This agreement allowed the applicants to borrow the shares for a limited period of time. In order to procure the shares for return under the stock lending agreement, the applicants were permitted, up to the number of shares borrowed, to purchase shares of the issuer in the open market or to request a capital increase from the issuer and to subscribe for the new shares (“over-allotment option”). The applicants requested the Disclosure Office to exempt them from the reporting obligation in connection with the share lending as well as the over-allotment option and purchases made on the market for stabilization purposes (both up to a maximum of the number of shares borrowed), stating that the transactions are short-term in nature and do not involve exercising voting rights. The applicants intended to borrow shares until the over-allotment shares are delivered or, if the over-allotment option is not exercised, until 35 calendar days after the first day of trading at the latest. The 35 calendar days were merely driven by the stabilization period of 30 calendar days (and the additional five days would give the issuer the possibility to conduct the over-allotment capital increase and deliver them. Both, the over-allotment option and the share lending would be disclosed in the prospectus in connection with the IPO. The Disclosure Office considered the applicants’ request, as always weighing the interests of market participants in disclosure against the applicants’ need for an exemption. It concluded that granting the exemptions was justified due to the short-term nature of the transactions and the applicants’ intent to stabilize prices and that notifications would not provide significant added value and could be even confusing to investors. In addition, the applicants would not exercise voting rights and will complete the transactions within a limited timeframe. It is noteworthy that the Disclosure Office noted in its considerations that information contained in a prospectus can be taken into consideration and serve transparency. But it also stated that only limited significance can be attributed to the publication of any stabilization activities in accordance with article 126 of the Financial Market Infrastructure Ordinance since such publication constitutes an independent obligation unrelated to the disclosure of shareholdings.

d) Capital market transactions: Recommendation OLS-10/22-A: Exemption and relief regarding disclosure in the prospectus for (sub)underwriters

The applicant in Recommendation OLS-10/22-A were the (sub-)underwriters in a capital increase. The shares were offered to existing shareholders through a right offering, and any remaining shares offered to the public or purchased by the applicants or any other underwriters. The applicants sought exemptions from certain disclosure requirements related to the underwriting and notification obligations. They argued that the underwriting is a short-term transaction with no intention to influence the company’s management through voting rights. The applicants stated that the necessary information regarding the underwriting will be provided in the prospectus, which will disclose the consortium members, the number of shares underwritten, the associated voting share percentage, and the expected holding period for each member. The Disclosure Office agreed that the transaction constituted an underwriting falling within the scope of the leaflet regarding applications for exemptions and easing provisions concerning disclosure in the prospectus for lock-up groups and (sub-)underwriters of 1 February 2022 (Leaflet) although the duration of the transaction (42 days after the execution of the underwriting agreement) might be deemed longer than average. The actual holding period of the applicants was presumed to be short. The Disclosure Office agrees with the applicants that in particular the intended prospectus wording disclosed (or will disclose once all the parameters of the transaction are clear) the essential information collectively in one single place (article 22 FMIO-FINMA), as requested by the Leaflet. The Disclosure Office concluded that, in principle, no or no significant information is withheld from market participants through disclosure in the prospectus. Thus, the applicants were granted their request to the effect that the reporting obligations arising in the context of the underwriting may be fulfilled in the prospectus. However, as usual, the Disclosure Office also stated that if one member of the underwriting consortium individually (or the consortium as a group as defined in article 12 FMIO-FINMA) holds any shareholding requiring notification in the issuer on the day the newly created shares are listed, then such shareholding must be disclosed within four trading days, at the latest, by means of notification to the Disclosure Office and to the issuer (in accordance with the provisions of FMIO-FINMA).

e) Capital market transaction: Recommendation OLS-12/22-A: Exemption and relief regarding disclosure in the prospectus for (sub)underwriters

The applicants were underwriters and sub-underwriters in a capital increase of a listed company. In the context of the planned capital increase, the applicants requested an exception or relief to the effect that the reporting obligations arising in connection with the underwriting can be fulfilled in the prospectus. Furthermore, it was requested that any sub-underwriters may make a disclosure notification within two trading days from the time when the contractual obligation to effectively buy a portion of the shares becomes effective for the relevant sub-underwriter; this was subject to the condition that the company and any further managers yet to be appointed provide certain information to the Disclosure Office within one trading day after the signing of any sub-underwriting agreement to the Disclosure Office. In addition, it was requested that the information contained in the prospectus not be need not be published by the issuer.

The Disclosure Office stated that, in fact, in the case of a capital increase with a firm underwriting, the function of a bank or consortium of banks is generally reduced to that of a “sales agent”. The shares are held exclusively for the purpose of subsequent placement with the shareholders of the company or on the capital market. The placement phase is generally of short duration and there is no intention to influence the management of the company by exercising voting rights. 

The Disclosure Office confirmed that the Leaflet was applicable. According to its practice (see also above Recommendation OLS-10/22-A), the applicants were granted their request to the effect that the reporting obligations arising in the context of the underwriting may be fulfilled in the prospectus. Again, the Disclosure Office also stated that if one member of the underwriting consortium individually (or the consortium as a group as defined in article 12 FMIO-FINMA) holds any shareholding requiring notification in the issuer on the day the newly created shares are listed, then such shareholding must be disclosed within four trading days, at the latest, by means of notification to the Disclosure Office and to the issuer (in accordance with the provisions of FMIO-FINMA).

With respect to the sub-underwriters, the Disclosure Office stated that from a balancing of interests, it is clear that there are no insurmountable reasons against the granting of relief. The applicants and the possible sub-underwriters were therefore granted relief to the effect that the conclusion of a sub-underwriting agreement does not have to be reported within four trading days after conclusion, but only at the time when the contractual obligation to effectively take over a portion of the shares is realized for the sub-underwriter concerned. This notification must be received in writing by the company and the Disclosure Office within two trading days. This facilitation is subject to the condition that the applicants, after conclusion of any sub-underwriting agreements, notify the Disclosure Office in writing of the name and registered office of the respective sub-underwriters as well as the maximum shareholding to be taken over by the respective sub-underwriter within one trading day after conclusion of the sub-underwriting agreements.

2) Federal Court Decision 2C_546/2020

A manager of collective investment schemes and its parent company inquired whether they were subject to article 120 FMIA and therefore had to report if the equity securities held by their investment funds in listed Swiss companies reached certain thresholds. FINMA ruled that this was the case. The Federal Supreme Court ultimately had to rule on the matter and stated that the purpose of article 120 FMIA is to require notification of any significant increase or decrease in voting rights. Article 120(3) FMIA covers situations which are not already covered by article 120(1) FMIA. This is the case, for example, if the voting rights of the beneficial owner are transferred to a third party without an acquisition or sale of securities having taken place. However, in the case of collective investment schemes, there is no beneficial owner, which is why article 120(1) FMIA is not limited to the beneficial owner pursuant to article 10(1) FMIO-FINMA. In the course of their business activities, investment funds regularly carry out transactions for the acquisition or sale of participations, which may also have an impact on voting rights. This therefore falls within the scope of article 120(1) FMIA. Thus, it is correct that FINMA in article 18(1) of its implementing ordinance (FMIO-FINMA) regulates collective investment schemes as subject to the reporting obligation, especially since it has considerable discretion in determining the scope of the reporting obligation. Thus, FINMA has not violated its scope of authority pursuant to article 123(1)(a) FMIA to issue implementing regulations also does not violate the principle of legality.

3) Assessment

The Disclosure Office’s practice published in its Annual Report 2022 serve as a good example of where the “hot topics” in disclosure under article 120 FMIA are: disclosure of underwriters and sub-underwriters in the prospectus (as was permissible based on the former Disclosure Office Notice I/09 on the fulfilment of the notification obligations in the prospectus) and disclosure of positions held by collective investment schemes.

It is expected that these topics will also be addressed in the revision of the FMIA which the Federal Department of Finance was instructed to prepare and for which the public consultation is expected by the first half of 2024.

Joey Weber (joey.weber@homburger.ch)