On 1 February 2024 SIX’s amended directive on the disclosure of management transactions (DMT) and related changes to the SIX Listing Rules entered into force. Besides a number of procedural and formal changes, the amendments to the DMT focus primarily on related party transactions and introduced a new obligation to report certain follow-on transactions made by related parties. In connection with these amendments to the DMT, SIX Exchange Regulation also published a revised version of its guidelines on management transaction disclosures, setting out its practice and expectations as regards the disclosure of management transactions. SIX listed issuers were only given a short period of time to update their internal regulations and to provide a refresher training to their board members and senior management.

By Daniel Raun / Patrick Schärli (Reference: CapLaw-2024-04)

In this article, we will first discuss the changes made to the SIX Listing Rules and the DMT as part of the recent amendments. In the second part, we will dive into implementation-related practical aspects of the obligation to report management transactions.

1) Changes to the rules on disclosure of management transactions

The amended SIX rules on the disclosure of management transactions, as set forth in the SIX Listing Rules (specifically in art. 56 of the SIX Listing Rules) and the DMT, include a variety of amendments that are mostly formal or procedural in nature. On the other hand, the new rules also extended the scope of disclosure obligations, in particular with respect to transactions involving related parties.

a) Changes related to formal or procedural matters

In terms of formal or procedural matters, changes to the listing rules and the DMT include the following:

– Reporting of transactions in unlisted classes of shares: Where a company has both listed and unlisted classes of shares (e.g. listed common shares and unlisted voting right shares), management transactions in unlisted classes of shares of such a company are now also subject to reporting obligations. 

Given that many Swiss listed companies nowadays have a single class of shares, this amendment will likely affect only a smaller number of companies. That said, for companies that still have multiple share classes, it will be of particular importance to reflect this change to the DMT in their internal regulations and to properly instruct the persons subject to reporting obligations (see 2c) below).

– Terms of conditions of unlisted financial instruments: In terms of content of management transaction reports, the amended DMT now explicitly requires that the principal terms and conditions of unlisted conversion rights, option rights and similar financial instruments will have to be disclosed. As a point of reference, the reportable terms and conditions are similar to what already today has to be reported in the context of the disclosure of significant shareholdings. However, if a conversion right, option right or similar financial instrument has an ISIN assigned to it, it is sufficient to include such ISIN in the management transaction report. The purpose of this rule is to ensure transparency as regards the mechanism of the relevant financial instruments.

– Obligation to correct reports: The amended DMT now provides for an obligation to file corrected reports. Accordingly, if a company discovers that a previously submitted report on the electronic reporting platform contains errors, the company must submit a corrected report immediately. The SIX reporting platform will flag a corrected report as such. 

In terms of implementation of the amended DMT, a company will have to make sure that its internal procedures and organization are designed in a way to be able to react quickly and make the necessary corrective filings in due course. Given the requirement of an “immediate filing” of the corrected report, having sufficient company-internal resources is thus becoming even more important (see also 2d) below).

In addition to the above changes, the amended set of rules also clarifies certain other aspects of the reporting obligation, such as calculation of transaction value or timing of reporting obligations in the context of takeover offers. 

b) Transactions with related parties

The amendments to the listing rules and the DMT put a particular focus on transactions between persons subject to reporting obligations and their respective related parties. The goal is to further increase transparency as to these types of transactions and to provide market participants with additional context when reading management transaction reports.

– Transactions with related parties: Under the amended rules, transactions between members of the board of directors or the executive committee, respectively, and related parties (e.g. spouses, children, controlled legal entities) are now explicitly subject to a disclosure obligation. While one may question if this is in fact a new obligation, as part of the amendments to the listing rules and the DMT, SIX also introduced a requirement to include in the management transaction report a description of the related-party nature of the relevant transaction.

It is worth noting that transactions with a related party may in a number of instances still be subject to exemptions from the reporting obligations. In particular see the various exemptions in art. 5(3) DMT, of which some (e.g. gift or inheritance) may well apply in the context of transactions with related parties.

– Follow-on transactions by related parties: Where a transfer of reportable securities to a related party was originally exempt from the reporting obligations (e.g. in case of gift or inheritance), any further transfer of these securities from such related person to a third party will have to be disclosed under the new rules. Such disclosure will be required irrespective of whether the follow-on transaction affects the assets or was made under the significant influence of a person subject to reporting obligations. 

From a practical point of view, two points are worth highlighting in connection with follow-on transactions: First, the reporting for the follow-on transaction will have to be made by the person originally subject to reporting obligations (i.e. the member of the board of directors or executive committee) and not by the related party. Moreover, there is no time limit for reporting of follow-on transactions. The obligation remains in place as long as the person subject to reporting obligations remains a member of the board of directors or executive committee of the listed company. Issuers will have to consider how to ensure compliance with the follow-on reporting obligation, e.g. by requiring that all exempted transactions are nonetheless reported in the first place.

2) Implementation and other practical considerations

a) Introduction

In parallel to the amendments to the DMT, SIX Exchange Regulation (SER) has also revised and updated its guidelines on management transactions (Guideline DMT). The updated Guideline DMT provides further guidance on practical aspects of the reporting obligations, the content of the management transaction reports, implementation of the obligations within a company’s organization, as well as the enforcement practice of SIX’s sanction bodies.

On the face of it, the revision of the rules on the reporting of management transactions concerns substantive matters rather than procedural aspects. However, given the extended scope of applicability with respect to transactions between persons subject to the reporting obligation and their related parties and, under certain circumstances (see 1b) above), by related parties without any active participation by persons subject to the reporting obligations, it is becoming all the more important for issuers to ensure that members of their board of directors and executive committees are aware of their obligations. Further, the Guideline DMT also expands on topics regarding organizational matters. Against this background, we expect that SER will increasingly focus on whether issuers were properly organized when investigating potential violations. Combined with the expanded scope of the reporting duty in an area where there is already a high inherent risk of inadvertent violations it seems probable that sanctions by SER for breach of these provisions will become more numerous.

b) Internal regulations

The Guideline DMT continues to explicitly recommend that issuers put in place internal regulations or directives to implement art. 56 of the SIX Listing Rules. It is equally important to ensure that such regulations and directives remain up-to-date at all times as SER would likely look unfavorably upon any issuer whose internal documentation turns out to be outdated in case of an investigation for breach of the reporting duty. In particular, issuers who have not yet made the necessary amendments to their internal regulations and directives to reflect the recent changes are well-advised to do so at their earliest convenience and roll out the revised documentation (including any updates to company-internal reporting forms and processes) to the relevant individuals.

c) Instruction of persons subject to the reporting obligation

Issuers are required to provide for appropriate and effective instruction and training of the members of their board of directors and executive committee. As before, the mere distribution of the relevant internal regulations is insufficient and an issuer would not be deemed to have appropriately instructed the relevant individuals. The written documentation therefore has to be complemented by verbal instruction and training. It seems advisable that issuers arrange for a more comprehensive training at the occasion of the entry into force of the new provisions (to the extent they have not already done so) with a specific focus on the changes. This can be done at a regular meeting of the board of directors or the executive committee, respectively, or by way of a separate training session. For evidentiary purposes it is recommended that the instruction and training is minuted or otherwise documented.

Members must be regularly reminded of their duties. While the Guideline DMT does not specify the intervals, we believe an annual reminder is sufficient. This, too, should be properly documented. With respect to any new members it is advisable not to wait until the next regular reminder session but to instruct them (and provide the relevant documentation) latest at the time when they assume their function as a member of the board of directors or executive committee, respectively, to minimize the risk of any violation.

d) Internal organization

The revised Guideline DMT puts an even stronger emphasis on the issuer’s obligation to set up and maintain an appropriate internal reporting system, with clearly defined responsibilities. It is therefore advisable to set out such responsibilities in writing in the relevant internal regulations. In particular, there should be no doubt to whom management transactions have to be reported and who to liaise with in case of questions. In case there are any changes to the individuals responsible to receive notifications of management transaction, the relevant documentation should be immediately updated. It may be worthwhile setting up a centralized address or distribution list (e.g. management-transactions@companyname.com) so as not having to amend the documentation each time there is a change among the individuals internally responsible for processing management transaction reports. The Guideline DMT now also explicitly mentions what has already been ruled by the Sanction Commission in 2013 – that a single person is not deemed a sufficient internal organization.

Daniel Raun (daniel.raun@advestra.ch)
Patrick Schärli (patrick.schaerli@lenzstaehelin.com)