SWITZERLAND: An Introduction to Capital Markets

Chambers Overview, Switzerland, Practice Area: Capital Markets

Contributors:
Annette Weber, Partner
Sandro Fehlmann, Partner
Alexander von Jeinsen, Partner
Annina Hammer, Associate

Framework conditions 

Switzerland offers attractive economic conditions to companies from across the globe and stemming from a wide range of industries which are looking to raise capital. It boasts a legal and regulatory framework ensuring competitiveness as well as compliance with internationally recognized standards. A well-functioning, long-established, yet dynamic financial ecosystem is further key to the success of the Swiss capital market.

Both Swiss and international investment banks regularly support issuers when placing shares or fixed income instruments with investors. Their high placing power is one of the aspects making the Swiss capital market an attractive and effective choice for issuers. In fact, a significant number of transactions taking place in Switzerland are structured as 144A offerings targeted at qualified investors, which shows that the Swiss capital markets – notwithstanding the size of the country - can reach an international investor base. State of the art financial market infrastructures (performing without a glitch even when the high volatility in reaction to the global pandemic drove trading volumes to all-time highs) further contribute to the Swiss market’s appeal – as do internationally renowned industry clusters, such as for pharmaceutical and biotech companies, to name just one.

The Swiss regulatory environment, known for being well-developed and stable for many years, underwent several changes in recent years impacting the capital market landscape (e.g. a new prospectus regime, see below). Amongst others, the SIX Swiss Exchange revised its regulations on ad hoc publicity and corporate governance. The revised ad hoc regulations will provide a number of changes relevant to issuers of listed securities on the SIX Swiss Exchange, including the labelling of ad hoc announcements as such, to name one new provision.

Capital market activity overshadowed by COVID? 

The pandemic brought entirely new challenges and a high level of uncertainty to economies all over the world, Switzerland being no exception. Capital market activity, however, remained largely unaffected, except for short periods of time when issuances came to a standstill. In 2021, SIX Swiss Exchange – Switzerland’s largest stock exchange – recorded 5 IPOs, among them the first Special Purpose Acquisition Company (SPAC) to list in Switzerland. The total amount raised by these issuers exceeded CHF 2 billion, whereas in the fixed income space, bond issuers raised CHF 93 billion in 2021, compared to CHF 88 billion in the previous year. Issuers of Exchange Traded Funds, Exchange Traded Products and Structured Products were equally very active in the market.

The new prospectus regime: one year later 

On 1 January 2020, the Financial Services Act (FinSA) and its implementing ordinance, the Financial Services Ordinance (FinSO) entered into force. Together with further recent legislative acts reforming the regulatory framework for the financial market, FinSA and FinSO align the Swiss legislative landscape with EU law with the aim to achieve equivalence. Hence, the new prospectus regime is largely modelled along the EU Prospectus Regulation framework.

An important part of FinSA and FinSO relate to the prospectus requirements for issuers. In a nutshell, and without going into the intricacies of the law, the major changes introduced with regard to prospectuses are:

- The obligation to have the prospectus vetted ex ante by one of the prospectus reviewing bodies approved by the Swiss Financial Market Supervisory Authority, FINMA. - The obligation to publish a prospectus not only for primary offerings, but for secondary offerings, too. (The obligation to prepare a prospectus will be subject to various exemptions modelled to a large extent along the EU Prospectus Regulation).
- A comprehensive regulation of prospectus content on federal law level. The self-regulatory powers of the Stock Exchanges in the realm of the listing prospectus are a thing of the past.
- The possibility for prospectuses drawn up according to the laws of other jurisdictions to be approved in Switzerland, too or even to be considered approved automatically, depending on the applicable law. This presents issuers with opportunities comparable to those of the EU passporting regime, despite Switzerland not being a member state of the EU.
- The obligation to draw up a key investor document (KID) when financial instruments are offered to retail investors. Exempted from the obligation to publish a KID are equity securities or non-derivative debt instruments, such as plain vanilla bonds. Whereas not directly part of the prospectus rules, such obligation is at least related to the obligation to publish a prospectus. The KID shall contain the information essential for investors to make a well-founded investment decision and a comparison of different financial instruments.
- Beyond civil prospectus liability, the new regime also provides for administrative criminal liability sanctioned by a fine of up to CHF 500,000 for whoever wilfully makes a false statement in a prospectus or omits material facts or does not publish a prospectus at the beginning of a public offering.

Although the introduction of an ex ante prospectus approval marked a major changed in the Swiss capital market, market participants transitioned smoothly into the new legal regime.

SPACs make an entrance, a new stock exchange segment caters for SMEs and SIX Digital Exchange is launched

We like to highlight three notable changes in the regulatory framework in 2021, of which two are applicable to equity securities and one to equity as well as to debt securities:

- SPACs: The SIX rules relating to SPACs entered into force, allowing SPACs to list on the exchange. The new rules take into account the particularities of SPACs, especially with regard to disclosure at the time of the IPO as well as of the De-SPAC. At the time of the IPO, a SPAC must disclose additional quantitative and qualitative information in the prospectus in accordance with the rules of SIX. The quantitative information particularly relates to disclosures on the dilutive effect, for example due to warrants, and on the costs to be borne by a public shareholder if the shares are returned. At the time of the De-SPAC, SIX rules require issuers to prepare an information document to shareholders about the De-SPAC, which must include, inter alia, a fairness opinion. Another requirement worth noting is that companies listed as SPACs must be stock corporations according to Swiss law. This requirement prevents cross-border listings for SPACs – companies domiciled abroad will need to relocate prior to an IPO. Within just days of entry into force, the first SPAC IPO took place on SIX Swiss Exchange. It remains to be seen how the SPAC market will develop in Switzerland.

- SPARKS: SIX Swiss Exchange introduced "SPARKS", a new market segment dedicated to SMEs. SPARKs issuers have to comply with a set of rules differing from those in the main market, with regard to market capitalization and free float. Trading hours are reduced to a narrow window from 3.00 pm to 5.40 pm, taking into account that liquidity in SMEs is typically lower than in large caps. Xlife Sciences, a company focused on further development and commercialization activities related to promising life sciences research projects from universities and other research institutions, is the first issuer to have listed in SPARKs.

- SIX Digital Exchange: A step forward into the future is the SIX Digital Exchange (SDX). The SDX is a stock exchange and central securities depository for digital assets based on distributed ledger technology. SIX Group marked the launch of the SDX with its own issuance of a senior unsecured digital CHF 150 million bond due 2026.