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SWITZERLAND: An Introduction to Capital Markets

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Chambers Europe 2022: Practice Area Overview

Switzerland: Capital Markets

by Frank Gerhard, Lorenzo Togni and Estelle Piccard

I. Switzerland Country Overview 2022

In a challenging political and economical context marked by the aftermath of Brexit, energy shortage, imminent inflation woes, announced monetary tapering and a variety of COVID-19-induced constraints particularly affecting supply chains and raw materials, 2021 was a dynamic year for Swiss capital markets, with new topics on the radar including cryptocurrencies, SPACs, a new market segment for SME companies and the emergence of DeFi. Against this background, a number of Swiss and foreign companies seized the opportunity to go public in Switzerland. This was also in line with the international trend—with 590 IPOs raising an aggregate EUR77 billion in Europe and 1,100 IPOs raising an aggregate EUR280 billion in the United States, 2021 was the strongest year for IPOs worldwide since 2000, both in terms of number and issue volume.

Of the 14 Swiss-based companies (including one SPAC) that went public in 2021, six listed their shares on a Swiss stock exchange, while eight pursued a listing on a foreign stock exchange, including the Nasdaq Stock Market and the New York Stock Exchange.

In November 2021, the regulator approved, and SIX Swiss Exchange enacted, the framework for listing of special purpose acquisition companies (SPACs), paving the way for Swiss SPAC listings – promptly followed on December 15, 2021, by VT5 Acquisition Company AG as the first SPAC to list on SIX Swiss Exchange. The VT5 Acquisition Company AG IPO comprised an offering of Class A shares alongside redeemable warrants – with both being offered as a 'package', the elements of which could be traded separately immediately upon listing. With a good aftermarket performance in the days following effectiveness of the listing, VT5 Acquisition Company AG was able to sustain its initial market capitalisation, fuelling hopes that this new form of IPO will be seen more frequently in Switzerland in the near future.

The five Swiss companies and the SPAC that completed the listing of their shares on a Swiss stock exchange in 2021 are:

VT5 Acquisition Company AG, with CHF200 million raised (SPAC IPO) on the SIX Swiss Exchange;

PolyPeptide Group AG, with CHF848 million raised (IPO) on the SIX Swiss Exchange;

Montana Aerospace AG, with CHF506 million raised (IPO) on the SIX Swiss Exchange;

medmix AG, with CHF315 million raised (IPO) on the SIX Swiss Exchange;

SKAN Group AG, with CHF270 million raised (IPO) on the SIX Swiss Exchange; and

Kursaal Bern AG, with CHF15 million raised (IPO) on the BX Swiss.

The eight Swiss companies that completed the listing of their shares on a foreign exchange in 2021 are:

On Holding AG, with USD858 million raised (IPO) on the New York Stock Exchange;

Sportradar Group AG, with USD513 million raised (IPO) on the Nasdaq Stock Market;

SOPHiA GENETICS SA, with USD243 million raised (IPO) on the Nasdaq Stock Market;

VectivBio Holding AG, with USD147 million raised (IPO) on the Nasdaq Stock Market;

Molecular Partners AG, with USD64 million raised (IPO) on the Nasdaq Stock Market;

Astrocast SA, with USD52 million raised (IPO) on the Euronext Growth market (Oslo);

NLS Pharmaceutics AG, with USD23 million raised (IPO) on the Nasdaq Stock Market; and

ID-ENTITY SA, with USD3 million raised (IPO) on AIM Italia.

Bucking the trend towards foreign listing venues, the Swiss stock exchanges remained attractive, with the 2021 additions showing a 200% growth compared to 2020 and totalling a volume of approximately two billion Swiss francs.

II. Significant Developments in 2021

Special Purpose Acquisition Companies (SPACs) 

A SPAC is a company without any active business operations and viewed as a “corporate shell” founded for the sole purpose of acquiring a non-listed company. Specifically, a SPAC raises capital with the aim of using it to acquire such privately held company, the identity of which is unknown at the time of the SPAC’s IPO.

With the growing interest worldwide in SPAC transactions outside of the United States, European capital markets started to follow suit, and SIX Swiss Exchange decided to enable and regulate the listing of these special purpose vehicles. As of December 6, 2021, SPACs can be listed on the SIX Swiss Exchange under a new listing standard that caters for the specific characteristics of these shell financial vehicles, while still upholding an appropriate degree of investor protection.

With the first SPAC listing, VT5 Acquisition Company AG, having already taken place on December 15, 2021 on the SIX Stock Exchange, it will be interesting to see whether the SPAC trend will continue in Switzerland in 2022.

Sparks 

On July 8, 2021, the SIX Swiss Exchange announced the launch of Sparks, a dedicated new equity segment targeting small and medium enterprises (SMEs). The new segment is designed to allow SMEs to raise capital in public offerings, whilst enabling investors to tap the growth potential of SMEs. With somewhat more relaxed listing requirements compared to the SIX main market, Sparks targets companies with a market capitalization of less than CHF500 million. Sparks listed companies can request a transfer to the SIX main market after a certain period, but are regulated to transfer to such main market if their average market capitalization exceeds CHF1 billion over a period of 12 months.

We believe Sparks will be an interesting proposition for a number of parties: for SMEs, allowing them to efficiently raise capital whilst taking advantage of less onerous listing requirements, and for their investors, allowing for enhanced liquidity, effective price formation and best execution.

SDX 

In September 2021, SIX was granted the relevant licences from FINMA to start operating its new trading platform: SIX Digital Exchange (SDX). Those licences now allow the trading and the integrated settlement of tokenized digital assets in the Swiss financial sector.

In November 18, 2021, SIX Swiss Exchange launched its SIX Digital Exchange by successfully issuing the world’s first digital bond in a fully regulated environment. In doing so, SIX Swiss Exchange placed the first senior unsecured digital CHF bond with a total volume of CHF150 million and a maturity in 2026 via its holding company SIX Group Ltd. This was the first time that licences have been issued for the Swiss financial market for infrastructures that facilitate trading of digitized securities in the form of tokens and their integrated settlement.

III. Outlook and Trends for 2022

With the Swiss Market Index gaining 20.3% and the Swiss Performance Index gaining 23.4% in 2021, the Swiss stock market closed the year favourably. Looking ahead, we believe the following trends may shape 2022 in Swiss capital markets.

More Flexible Swiss Corporate Law 

The Swiss Federal Council declared the new Swiss corporation law effective as of January 1, 2023. The revised legal framework will introduce the possibility for Swiss-based companies to express their nominal capital not only in Swiss francs, but also in euros, US dollars, pounds sterling or Japanese yen, if this is their functional currency. The revised law will also introduce a much welcomed flexibility and administrative simplification with regard to the holding of general meeting and changes in capital. We expect these and other changes providing for greater flexibility in Swiss corporate law that are due to become effective in 2023 to favour the domiciliation of potential listing candidates in Switzerland.

Growth in the Cryptoassets Domain 

In 2021, the demand for cryptoassets soared on SIX Swiss Exchange with trading volume exceeding the figures for 2020 in just a couple months into 2022. Demand did not come only from small and mid-sized investors, but mainly from institutional investors.

Faced with such a demand, SIX Swiss Exchange reacted quickly and was able to add seven new cryptocurrencies to its catalogue in 2021. We expect that the interest in such cryptoassets will keep rising in 2022.

The Door is Opened for Small Investors 

Ultra-low interest rates allowed small investors to crowd into the stock market. In 2021, it was reported that the number of trades under 10,000 Swiss francs strongly increased, resulting in an increase in trades overproportionately compared to the aggregate trading volume of previous years.

In addition to have the number of investors in the market growing and stimulating market activity, new issuers of exchange-traded funds, mutual funds, exchange-traded products, and structured products registered with SIX Swiss Exchange in 2021. SIX Swiss Exchange also reached an all-time high number of tradable structured products listed in December 2021. Current data suggests 2022 will be able to keep the momentum.

Increase in Regulatory Divergences 

After Brexit became a reality in 2021, Europe faced a rise in regulatory divergences. Switzerland was no exception as its stock exchanges would now need to navigate regulatory divergences between the United Kingdom and the European Union. Increase in regulatory divergences might cause confusion and additional costs to bear for investors.

With Europe seeing the strongest IPO growth in its history in 2021, and with tech companies leading the IPO market, we are moving towards a technology driven capital market that will surely not disappoint in 2022.

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