SWITZERLAND: An Introduction to Capital Markets
Switzerland offers a very attractive capital markets environment. Traditionally the world's largest international wealth management centre, it provides both investors and issuers with attractive investment and financing opportunities thanks to its modern financial market infrastructure, and its competitive, solid and internationally compliant regulatory environment. This combination, together with the country's stable political climate and currency, makes Switzerland a prime location to raise capital, invest money, or list equity and debt instruments.
The SIX Swiss Exchange, the principal securities trading platform in Switzerland, has established itself as – and continues to be – a premier listing and trading platform for debt and equity securities, structured products and other derivatives. Its modern, fully integrated value chain affords automatic trading, settlement and clearing, and provides for an efficient, speedy listing process. This framework has positioned the SIX Swiss Exchange as an attractive listing platform for issuers seeking attractive timelines between launch, admission to trading, and listing, as well as the efficient trading of their securities. This is particularly true for the issuance and listing of bonds, structured products and other debt securities – not the least because of the post-issuance listing approval process. Therefore, it does not come as a surprise that leading Swiss and other European issuers such as Barclays, Credit Suisse, Nationwide and UBS have chosen to list some or all of their regulatory capital instruments, such as Contingent Convertible Bonds (CoCos) or Contingent Write-Down Bonds, and Total Loss-Absorbing Capacity (TLAC) instruments, on the SIX Swiss Exchange.
In 2018, the Regulatory Board of the SIX Swiss Exchange cleared the way for the listing and settlement of Exchange Traded Products (ETPs) and other structured products using cryptocurrency underlyings. Based on a revision of its regulations, in November 2018, it was the world's first regulated stock exchange to list a crypto-index ETP. Accordingly, it is now possible to issue a large range of products with eligible cryptocurrency underlyings such as Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) or Litecoin (LTC) under issuance programmes registered with SIX.
The SIX Swiss Exchange further announced its plans to establish a fully end-to-end integrated digital asset trading, settlement and custody service under the SIX Digital Exchange (SDX) umbrella. This planned "digital asset ecosystem" will enjoy the same standard of supervision and regulation as SIX established platforms for the trading and settlement of securities.
In December 2017, BX Swiss, another licensed Swiss Stock Exchange, was acquired by Boerse Stuttgart. BX Swiss promotes itself for the listing of foreign shares, ETFs/funds as well as structured products.
II. Key FiguresAccording to the SIX Swiss Exchange, a total of 60,300,618 trades (+17% compared to the previous year) were conducted on the exchange in 2018 (on, off and dark order book). In addition, as of the same date, trading turnover across all securities amounted to over CHF1.361 trillion (+1.1% compared to the previous year), with equities trading (including funds and ETPs) contributing over 81% to the total turnover. Despite the lingering dispute with the EU over the extension of its equivalence recognition beyond the end of 2018 (currently the recognition has been extended until July 2019), the SIX Swiss Exchange's market share in the trading of Swiss large-cap equities rose from 68.3% in the preceding year to 70.6% in 2018. While the volume of CHF bonds trading slightly decreased to CHF120.6 billion (-6.6% compared to 2017), the turnover in non-CHF bonds decreased to CHF16.8 billion (-36.1%). Trading of structured products and warrants at the Swiss SIX Exchange in 2018 also slightly decreased to a total volume of CHF15 billion (-5.9%).
III. Regulatory Environment
Swiss capital markets regulation rests on the principle of providing all participants with free non-discriminatory access to the Swiss markets, subject to adequate disclosure, proper market conduct, and – for financial intermediaries that both offer services and have a physical presence in Switzerland – licensing requirements. At present, there are no Swiss registration requirements for debt or equity offerings (whether public or private, primary or secondary market), but the spectre of civil liability for inadequate or incorrect disclosure provides an effective safeguard.
In 2018, the comprehensive overhaul of Switzerland's financial market laws took a further significant step towards completion in 2020.
Already on 1 January 2016, the Swiss Federal Financial Market Infrastructure Act (FMIA, Fin-fraG) entered into force. The FMIA established a regulatory framework for financial market infrastructure generally in conformity with the European Market Infrastructure Regulation (EMIR) and the Dodd-Frank Act, and introduced regulations applicable to the OTC derivatives market. On 15 June 2018, the Swiss Parliament added two new bills to the new architecture of Switzerland's financial market laws: it approved the bill for a new Swiss Federal Financial Services Act (FFSA, FIDLEG) and the bill for a new Swiss Federal Financial Institutions Act (FFIA, FINIG). The relevant implementing ordinances are currently under consultation. It is expected that the new bills and the implementing ordinances will enter in full effect as 1 January 2020.
The FFSA will, inter alia, provide Switzerland with comprehensive primary market regulations. It also implements for the first time a comprehensive prospectus requirement framework that conceptually is modelled after the European Prospectus Directive while at the same time leaving sufficient room to preserve the basis for a highly competitive market. For instance, the FFSA's ex-ante prospectus approval requirement will not apply to designated debt instruments, provided certain requirements are met. Designated instruments comprise first and foremost all types of bonds including (mandatory) convertibles and regulatory capital instruments, and also structured products with a minimum maturity of 30 or more days. Prospectuses for such securities can be approved ex-post after the public offering or admission to trading, provided the most important information about the issuer and the securities is publicly available at the time of the offering or admission. By preserving this particular advantage of the existing listing prospectus approval process in the Swiss debt capital markets, the FFSA ensures that there continue to be very attractive time-to-market conditions for issuers of debt instruments.
In addition to the new prospectus regime, the FFSA will introduce a key information document (KID) similar to the key information document under the EU-PRIIPs regulation. A KID has to be prepared when offering financial instruments other than shares and debt instruments without derivative character to private clients or retail investors. This KID must contain all information material for the client’s investment decision, presented in an easily comprehensible way, and is designed to make financial instruments easier to compare. In the case of material changes to the information contained in the KID, it must be updated.
The FFSA is open to the use of foreign disclosure documents. In particular, it allows for the approval of foreign-law prospectuses drawn up in accordance with international standards and even foresees the possibility to designate jurisdictions eligible for automatic approval. Moreover, it allows issuers and distributors of financial products to use EU-PRIIPs KIDs instead of the Swiss KID, which will facilitate the distribution of EU products in Switzerland.
Finally, the FFSA will, with certain exceptions, introduce a registration requirement for foreign entities and their personnel that provide financial services to customers in Switzerland, even on a mere cross-border basis, and an obligation for any such foreign financial service provider to join an eligible ombudsman's organisation.
The FFIA will overhaul the regime for the distribution of collective investment schemes in Switzerland and for the first time subject all asset managers to licensing requirements and (indirect) prudential supervision in Switzerland.