Swiss law requires the public disclosure of significant shareholdings in Swiss listed companies to increase transparency and ensure equal treatment among market participants. In particular, market participants shall be informed about who actually controls and who is building up or reducing a stake in a Swiss listed company which is particularly relevant in connection with a potential public takeover transaction. In light of these objectives, the overarching principle of the Swiss regime for the disclosure of significant shareholdings is to look at the economic situation and towards the person that is the beneficial owner, i.e. the person that is controlling the voting rights stemming from a shareholding and bearing the associated economic risk. A change in practice announced by the disclosure office of SIX Swiss Exchange (SIX)¹, triggered a certain degree of uncertainty among market participants regarding the disclosure obligations of the members of the banking syndicate² in Swiss equity capital markets transactions. The purpose of this position paper is to lay out the joint position of leading Swiss capital markets law firms on this topic to facilitate a uniform approach in Swiss equity capital markets transactions and increase legal certainty. For this purpose, it has also been discussed with leading banks in Switzerland and reflects their understanding and approach on the relevant matters. 

(Reference: CapLaw-2023-02)

A. Legal Framework

I. Swiss Financial Market Infrastructure Act

Art. 120(1) of the Swiss Financial Market Infrastructure Act (Finanzmarktinfrastrukturgesetz; SR 958.1; FMIA) requires 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 Company³ (the Company) and thereby reaches, falls below or exceeds certain thresholds starting at 3% of the voting rights to notify this to the Company and to the relevant stock exchange. Pursuant to art. 120(2) FMIA, financial intermediaries who acquire or dispose of shares or acquisition or sale rights on behalf of third parties are not subject to this notification duty.

Certain transactions, namely (i) the initial listing of equity securities, (ii) the conversion of participation certificates or profit-sharing certificates into shares, (iii) the exercise of conversion or acquisition rights, (iv) changes in the share capital and (v) the exercise of sale rights, are deemed equivalent to an acquisition or disposal (art. 120(4) FMIA).

II. FINMA Financial Market Infrastructure Ordinance

Based on art. 123 FMIA, the disclosure obligations set out in art. 120 FMIA are further detailed in FINMA’s Financial Market Infrastructure Ordinance (Finanzmarktinfrastrukturverordnung-FINMA; SR 958.111; FMIO-FINMA).

In particular, art. 13(1) FMIO-FINMA specifies that the notification duty under art. 120(1) FMIA is triggered when the contract resulting in the claim to acquire or dispose of the relevant securities or rights is entered into (Verpflichtungsgeschäft). Therefore, the point in time when legal title to the securities is actually transferred (Verfügungsgeschäft) is not relevant under art. 120 FMIA. Further, while conditional claims also result in a notification duty, no disclosure obligation is triggered by the mere indication of an intended acquisition or disposal, provided there are no legal obligations associated therewith (art. 13(1) FMIO-FINMA). Finally, no notification duty is triggered if a relevant threshold is temporarily reached, exceeded or fallen below during a trading day (art. 10(3) lit. c FMIO-FINMA).

Pursuant to art. 19(1) FMIO-FINMA, when calculating their acquisition and disposal positions, banks and securities firms under the Swiss Financial Institutions Act (Finanzinstitutsgesetz; SR 954.1; FinIA) may further disregard equity securities and equity derivatives which they hold (a) in their trading book, provided their share does not reach 5% of voting rights, (b) as part of securities loans, collateral transactions or repurchase agreements provided their share does not reach 5% of voting rights and (c) only for up to two trading days and exclusively for clearing and settling purposes. This limitation is only applicable if there is no intention to exercise the voting rights or to intervene in the management of the Company in any other way, and the voting share does not exceed 10% of the voting rights (art 19(2) FMIO-FINMA).

B. Role of the Banking Syndicate in Swiss ECM Transactions

The role of the members of the banking syndicate in Swiss equity capital markets transactions varies depending on the transaction type, namely on whether the transaction involves the issuance of new shares by the Company (Primary Transaction) or the sale of existing shares by the Company or one or more selling shareholder(s) (Secondary Transaction) and whether the members of the banking syndicate assume any underwriting risk⁴ or not. Combinations of Primary Transactions and Secondary Transactions such as Initial Public Offerings with a primary and a secondary component or Accelerated Bookbuildings involving a capital increase and the sale of treasury shares by the Company are also common. Depending, inter alia, on the transaction size and the nature of investors, both Primary Transactions and Secondary Transactions can require the publication of a prospectus under the Swiss Financial Services Act (Finanzdienstleistungsgesetz; SR 950.1; FISA) even though prospectuses for pure Secondary Transactions are rare in practice (at least outside of Initial Public Offering scenarios). A common feature is that while the members of the banking syndicate may enter into legally binding arrangements to purchase shares and may acquire title to the relevant shares for a limited period of time as part of facilitating the settlement of the transaction, they have in none of these transactions any intention to exercise any voting rights or exert influence as a shareholder of the Company and that they only assume, subject to the inherent settlement risk, an economic risk in transactions involving an underwriting obligation.

I. Primary Transactions

1. Launch, Bookbuilding and Pricing

At the launch of a Primary Transaction, the Company and the members of the banking syndicate enter into an agreement (typically called ‘Underwriting Agreement’ or ‘Subscription and Share Purchase Agreement‘; the Agreement, and the offer size and/or pricing supplement thereto (if any), the Supplement) which sets out the rights and obligations of the respective parties regarding the transaction (the date of the signing of the Agreement being the Launch Date and the date of the signing of the Supplement (if any) being the Pricing Date). Depending on the commercial agreement of the parties, two main structuring alternatives can be distinguished:

– (Hard) Underwriting: In certain transactions, the members of the banking syndicate assume an underwriting risk. In this case, at the Launch Date, the members of the banking syndicate undertake to procure purchasers for a certain (minimum) number of shares at a certain (minimum) price and undertake to purchase from the Company the minimum number of shares at the minimum price if and to the extent they fail to procure the relevant purchasers. While this undertaking is typically subject to the fulfillment of certain conditions precedent, it already constitutes an obligation (Verpflichtungsgeschäft) to acquire shares in the Company in case they cannot find a sufficient number of investors. Typical examples are so-called ‘volume underwritings’ and so called ‘at markets rights issues’ with a minimum price guaranteed by the banking syndicate. Following the launch of the transaction, the banking syndicate will offer the shares to investors on behalf of the Company and conduct a so-called bookbuilding process aiming at selling these (or even more) shares at this (or a higher) price to investors. If the outcome of the bookbuilding process results in a higher number of shares and/or a higher offer price, the Company and the members of the banking syndicate enter into the Supplement. 

– Best-Efforts Transaction: In this more common transaction form, at the Launch Date, the members of the banking syndicate neither commit to purchase a certain number of shares nor to a certain purchase price⁵. Therefore, at the Launch Date, the essentialia negotii of any sale and purchase (i.e. price and quantity) are not agreed so that the entering into the Agreement does not create any legal obligations relating to the sale and/or purchase of shares. Rather, the parties initially agree that the banking syndicate offers the shares on behalf of the Company to investors and conducts a bookbuilding process at the end of which the parties may enter into the Supplement to agree on a final number of shares to be purchased by the members of the banking syndicate and sold to investors and the purchase price. Consequently, and contrary to underwritten transactions, the members of the banking syndicate do not assume any underwriting risk in best efforts transactions. Rather they merely act as agent to manage the bookbuilding process and facilitate the sale/purchase of the shares and settlement of the transaction which – economically – is effected between the investors and the Company. This is further evidenced by the fact that the allocation of the shares amongst the investors is typically agreed with the Company. 

2. Capital Increase

Under Swiss law, the creation of shares requires, inter alia, a valid subscription by the subscriber evidenced by a subscription form (Zeichnungsschein) as well as the payment of the nominal amount for the new shares to a blocked account with a Swiss bank. Since it is not practicable that a potentially large number of investors (some of which may be domiciled abroad) perform these technical steps, it is common that one member of the banking syndicate (the Settlement Agent) takes on the technical task to formally subscribe for the new shares and pay-in the nominal amount for the account and on behalf of the other members of the banking syndicate. 

3. Settlement

The settlement of Primary Transactions is effected in steps which are executed in short chronological order: First, the new shares are recorded in the Company’s register of uncertificated securities (Wertrechtebuch), registered with the main register of SIX SIS AG and credited to a securities account of the Settlement Agent to create intermediated securities (Bucheffekten). Thereafter, the Settlement Agent transfers legal title to the shares, partially via other members of the banking syndicate, to the investors which have agreed to purchase the relevant shares either by placing an order in the bookbuilding process and/or by exercising subscription rights.

II. Secondary Transactions 

1. Launch, Bookbuilding and Pricing

Launch, bookbuilding and pricing of Secondary Transactions largely follow the process for Primary Transactions. Since, as mentioned, prospectuses for Secondary Transactions are not very common in practice, almost all of these transactions are executed over-night as so called accelerated bookbuilding transactions. At the launch of such a Secondary Transaction, the selling shareholder(s) and/or, in case of the sale of treasury shares, the Company (the Seller) and the members of the banking syndicate enter into an agreement (typically called ‘Accelerated Bookbuilding Agreement’, the Agreement, and the offer size and/or pricing supplement thereto (if any), the Supplement) which sets out the rights and obligations of the respective parties regarding the transaction (the date of the signing of the Agreement being the Launch Date and the date of the signing of the Supplement (if any) being the Pricing Date). Depending on the commercial understanding of the parties, the same two main structuring alternatives as for Primary Transactions can be distinguished:

– (Hard) Underwriting: In these transactions, the members of the banking syndicate assume an underwriting risk since, at the Launch Date, they undertake to procure purchasers for a certain (minimum) number of shares at a certain (minimum) price and undertake to purchase from the Seller the minimum number of shares at the minimum price if and to the extent they fail to procure the relevant purchasers. While this undertaking is typically subject to the fulfillment of certain conditions precedent, it already constitutes an obligation (Verpflichtungsgeschäft) to acquire shares in the Company in case they cannot find a sufficient number of investors. Following the launch of the transaction, the banking syndicate will offer the shares to investors on behalf of the Seller and conduct a so-called bookbuilding process aiming at selling these (or even more) shares at this (or a higher) price to investors. If the outcome of the bookbuilding process results in higher number of shares and/or a higher offer price, the Seller and the members of the banking syndicate enter into the Supplement.

– Best-Efforts Transaction: In Secondary Transactions it has also become more common that, at the Launch Date, the members of the banking syndicate neither commit to purchase a certain number of shares nor to a certain purchase price. Therefore, at the Lauch Date, the essentialia negotii of any sale and purchase (i.e. price and quantity) are not agreed so that the entering into the Agreement does not create any legal obligations relating to the sale and/or purchase of shares. Rather, also in these transactions, the parties initially agree that the banking syndicate offers the shares on behalf of the Seller to investors and conducts a bookbuilding process at the end of which the parties may enter into the Supplement to agree on the final number of shares to be purchased by the members of the banking syndicate and sold to investors and the purchase price. Consequently, and contrary to underwritten transactions, the members of the banking syndicate do not assume any underwriting risk in best efforts transactions. Rather they merely act as agent to manage the bookbuilding process and facilitate sale/purchase of the shares and the settlement of the transaction which – economically – is effected between the investors and the Seller. This is further evidenced by the fact that the allocation of the shares amongst the investors is typically agreed with the Seller.

2. Settlement

The settlement of Secondary Transactions is also effected in steps which are executed in short chronological order: First, the sold shares (which typically already constitute intermediated securities (Bucheffekten)), are transferred from a securities account of the Seller to a securities account of a settlement agent. Thereafter, the Settlement Agent transfers legal title to the shares, partially via other members of the banking syndicate, to the investors which have agreed to purchase the relevant shares either by placing an order in the bookbuilding process.

C. Disclosure Obligations of the Members of the Banking Syndicate

The different roles of the members of the banking syndicate in the various steps described above trigger the following obligations under art. 120(1) FMIA (in each case assuming that a relevant threshold is reached or crossed):⁶

I. Signing of the Agreement and the Supplement

– (Hard) Underwriting: Provided that the relevant Company is already a Swiss Listed Company at the time of the execution (i.e. not in the (theorical) scenario of a fully underwritten Initial Public Offering), the execution of the Agreement involving a hard underwriting obligation of the members of the banking syndicate triggers an obligation under art. 120(1) FMIA since it creates a (conditional) obligation to purchase a certain (minimum number) of shares at a certain price. This is the case in both Primary Transactions and Secondary Transactions. Since in transactions involving the publication of a prospectus, a disclosure of the role of the banking syndicate and their underwriting obligation in the prospectus is more timely and more informative for market participants than a disclosure within the (relatively long) periods provided by the FMIO-FINMA via the electronic platform of SIX, SIX provides for a standardized process to apply for exemptions and easing provisions concerning disclosure of (sub-)underwriters in the prospectus (see SIX, Leaflet of 1 February 2022 regarding Applications for Exemptions and Easing Provisions Concerning Disclosure in the Prospectus for Lock-up Groups and (Sub-)Underwriters). This is particularly relevant for so-called ‘volume underwritings’ for which a form for a corresponding exemption request is attached to this position paper as Annex A. 

It should be noted, however, that in case a Supplement is executed, because the members of the banking syndicate were able to procure a sufficient number of investors committing to purchase/order the shares, their role and, in particular, their underwriting obligation is superseded and replaced by a role which is equivalent to best-efforts transactions, i.e. a mere role to act as agent of the Company/Seller to facilitate the settlement of the transaction. Therefore, if the Agreement and the Supplement are executed on the same trading day, the members of the banking syndicate are not required to make a notification under art. 120(1) FMIA since,

o they can rely on art. 10(3) lit. c FMIO-FINMA with regards to the purchase position created by the execution of the Agreement and superseded by the execution of the Supplement, and

o they can rely on art. 120(2) FMIA with regards to the technical role assumed by the execution of the Supplement as they acquire the shares on behalf of the investors ultimately purchasing the shares.

– Best-Efforts Transaction: The execution of the Agreement in best-efforts transactions does not trigger an obligation under art. 120(1) FMIA since this merely involves the indication of an intended acquisition or disposal with no legal obligations associated therewith (art. 13(1) FMIO-FINMA). Since the essentialia negotii have not been agreed upon, the obligations set out in the Agreement are, in particular, not conditional with respect to the purchase of shares. Similarly, the execution of a Supplement in a best-efforts transaction does not trigger a notification duty under art. 120(1) FMIA if the members of the banking syndicate are entering into the Supplement against the background of having received binding commitments from investors to purchase these shares, i.e. with the aim of reselling the relevant shares to investors identified in the bookbuilding process. The members of the banking syndicate can rely on the exceptions in art. 120(2) FMIA and art. 10(3) lit. c FMIO-FINMA. In addition, requiring members of the banking syndicate to make a notification pursuant to art. 120(1) FMIA in a best-efforts transaction would be contrary to the overarching principle of the Swiss disclosure regime for the disclosure of significant shareholdings since the banks are not entering into any transaction with a view to control the voting rights stemming from a shareholding or bearing the associated economic risk. Rather, a notification which may only become public significantly after the settlement of the transaction would be of little value and even misleading for market participants.

II. Placement of Shares with Investors

The receipt and acceptance of orders/commitments from investors by members of the banking syndicate to purchase the shares triggers the following obligations under art. 120(1) FMIA (in each case assuming that a relevant threshold is reached or crossed):

– In case of a hard underwriting, the mere receipt of such orders and commitments is not to be viewed as a derivative that would trigger the disclosure of a sale position (which would have to be disclosed on a gross basis on top of any purchase position). However, once the members of the banking syndicate enter into legally binding agreements with investors to on-sell the shares, the purchase position created by the entering into the Agreement (if there is any) is reduced which can trigger a corresponding disclosure obligation. However, if an exemption request has been granted by the relevant disclosure office, such exemption would (even if not explicitly asked for) also extend to such disposals since it would be misleading market participants to disclose a sale position if the corresponding purchase position did not have to be disclosed.

– In a situation where the members of the banking syndicate act as a mere financial intermediary and are exempted from the disclosure obligation based on art. 120(2) FMIA, the receipt or acceptance of the related orders/commitments from investors is covered by the exemption of art. 120(2) FMIA.

III. Capital Increase

Neither the undertaking to subscribe the new shares in Primary Transactions by the Settlement Agent nor the actual subscription by the Settlement Agent trigger an obligation under art. 120(1) FMIA since the Settlement Agent performs this technical role only once all shares which are subscribed have already been sold to investors (including, in case of a rights issue, subscribed by investors through the exercise of subscription rights) or, in case of a hard underwriting where the banks have not been able to sell all shares, to the relevant members of the banking syndicate. Therefore, the exemption in art. 120(2) FMIA is also applicable.

IV. Settlement

Given the point in time when legal title to the securities is transferred (Verfügungsgeschäft) is not relevant under art. 120 FMIA, none of the steps taken at settlement trigger a notification duty under art. 120 FMIA.

V. Over-allotment Options, Share Lending and Stabilization Measures

In Initial Public Offerings, the Company or a significant shareholder of the Company often grant a so-called over-allotment option (or Greenshoe Option) to the banking syndicate (or, more precisely, to the so-called stabilization manager acting on behalf of the syndicate) to enable the stabilization manager to effect price stabilization measures. In order to benefit from the safe haven from the prohibition of market manipulation, the over-allotment option has to comply with the requirements set out in art. 126 of the Swiss Financial Market Infrastructure Ordinance (Finanzmarktinfrastrukturverordnung; SR 958.11; FMIO) and, in particular, the publication obligations set out in art. 126 lit. c, d and e FMIO irrespective of the number of shares which are subject to the over-allotment option. With regards to the disclosure obligations under art. 120 (1) FMIA, according to SIX⁷ and, following this view, established Swiss market practice, over-allotment options are not considered to be an equity derivate within the meaning of art. 15(1) FMIO-FINMA and is thus not subject to disclosure obligations under art. 120(1) FMIA. In addition, any such option is typically held by the stabilization manager in its trading portfolio so that such option would also not need to be disclosed pursuant to the exemption under art. 19(1) lit. a FMIO-FINMA as long as it does not concern 5% or more of the voting rights of the Company. In addition, the share lending facilitating the settlement of the over-allotments benefits from the exemption under art. 19(1) lit. b FMIO-FINMA as long as it does not reach 5% of the voting rights of the Company. To the extent the over-allotment option and the related share lending concern 5% or more of the voting rights of the Company, it may be advisable to submit an exemption request to the competent disclosure office to allow a disclosure in the prospectus only (even if otherwise, an exemption request is not required for purposes of an Initial Public Offering).The stabilization purchases in the market do not trigger a notification obligation under art. 120(1) FMIA since the publication of such transactions is exclusively governed by art. 126 FMIO as lex specialis since otherwise the effectiveness of stabilization purchases could be thwarted.

Advestra
Baker McKenzie
Bär & Karrer
Homburger
Lenz & Staehelin
Niederer Kraft Frey 

¹ The considerations set out in this position paper apply, in principle, also to disclosure obligations relating to securities listed on other Swiss stock exchanges.

² For the purposes of this position paper, the term ‘banking syndicate’ should be understood broadly; members can be licensed banks or other financial intermediaries acting as selling or placement agents.

³ “Swiss Listed Company” means any company (i) which has its registered office in Switzerland and whose equity securities are listed in whole or in part in Switzerland, or (ii) which has its registered office abroad and whose equity securities are mainly listed in whole or in part in Switzerland.

⁴ For the purposes of this position paper, the settlement risk from pricing/allocation until settlement (closing) of a transaction (including the credit risk of investors having committed to purchase securities) inherent in most capital market transactions is not considered to constitute an “underwriting risk”. 

⁵ In capital increase transactions where the new shares are first offered to existing shareholders at a fixed price which is lower than the current market price of the shares (so called ‘discounted rights issues’), the purchase price at which existing shareholders (or purchasers of subscription rights) may acquire the new shares is already fixed at the Launch Date.

⁶ It should be noted that this position paper does not address the disclosure obligations the members of the banking syndicate may be subject to on an individual basis. Similar to so called lock-up groups, the banking syndicate only forms a group for the purposes of the disclosure obligations under art. 120(1) FMIA with respect to the securities which are part of the particular transaction perimeter. Purchase and sale positions which may be held by the members of the banking syndicate individually and which are unrelated to the relevant transaction do not need to be aggregated among the members of the banking syndicate, but may need to be disclosed on an individual basis if the relevant prerequisites (in particular, the relevant thresholds) are met.

⁷ See SIX press release dated 20 September 2018 ‘Anpassungen in der Praxis des Offenlegungsrechts’.