Shareholdings in listed companies that exceed 3% of the voting rights must be reported if certain thresholds are crossed. This so-called disclosure duty will be amended as part of the revision of the Swiss Stock Exchange Act: The supervisory and sanction regimes will be overhauled and the scope of application will be expanded. We expect the revised provisions to enter into force on April 1, 2013.
1. Supervisory Instruments
Until now, in cases where the disclosure duty was violated, only the civil judge was competent to suspend the voting rights of the acquirer, at the request of the Financial Market Supervisory Authority (FINMA), the company or any of its shareholders. This procedure proved to be ineffective in practice. Also, it proved inadequate that FINMA was only competent to impose supervisory measures on market participants under its supervision (e.g. banks, security dealers, fund managers).
In future, the competence to impose a suspension of voting rights will be transferred to FINMA, which in addition will also be competent to declare a ban on additional purchases of shares or related derivatives. Both the suspension of voting rights and the ban on additional purchases are designed as interim orders and can already be imposed if FINMA has reasonable suspicion that the disclosure duty has been violated; accordingly, they must be lifted once it is established that the disclosure duty has not been violated or if the acquirer complies with the disclosure duty and reports his or her holding. If a violation of the disclosure duty has been established, FINMA will, in the future, also be competent to confiscate any profits the acquirer has made as a result of a violation of the disclosure duty.
We expect the new supervisory regime to be significantly more effective and that FINMA will, going forward, have the supervisory instruments necessary to enforce compliance with the disclosure duty. However, it will still be necessary under the new supervisory regime that evidence or indications for violations of the disclosure rules come to the attention of FINMA. In particular, it seems difficult to prove that profits were realized as the result of a breach of the disclosure rules.
2. Sanctions
Whoever fails to report a significant shareholding in a listed company is subject to criminal prosecution by the Federal Department of Finance. Until now, a fine of up to twice the purchase price of the shares sold or acquired could be imposed. This open maximum level could result in excessive fines in cases of high deal volume, which was not considered appropriate to the offense against the disclosure duty. In future, the amount of the fine will be capped at CHF 10 million in cases of willful violation of the disclosure duty; the maximum amount for negligent violations remains at CHF 1 million.
The new maximum amount makes the consequences of a violation of the disclosure rules more transparent and seems more appropriate to the offense. It also takes into account that the disclosure rules have become overly complex and that compliance with the disclosure duty has become difficult to accomplish. Together with the new supervisory instruments of FINMA, the new maximum amount still seems sufficiently severe to deter market participants from infringing the disclosure rules.
3. Jurisdiction
Until now, the rules on disclosure of significant shareholdings only applied if the company had its corporate domicile in Switzerland and was listed on a Swiss stock exchange. In future, the disclosure rules will also apply with respect to companies domiciled abroad if their equity securities are, at least in part, primarily listed on a stock exchange in Switzerland. The purpose of the expanded jurisdiction is to avoid situations where neither the Swiss disclosure rules nor those of any other country apply. Pre-existing holdings of more than 3% in companies that will become subject to the disclosure rules for the first time must be reported within one year of the entry into force of the revision.
Around ten companies listed on the SIX Swiss Exchange will be affected by this expansion of jurisdiction. We recommend those companies to inform their shareholders in suitable form about this change. Significant shareholders of those companies should make sure to report their holdings within the one-year deadline, presumably by March 31, 2014.
In addition to the disclosure rules, foreign companies with a primary listing in Switzerland will, in the future, also be subject to the Swiss takeover rules. In particular, anyone who exceeds the threshold of 33.33% of the voting rights will be obliged to submit a mandatory offer for all listed shares. Affected companies may want to consider raising the threshold to a maximum of 49 % ("opting-up") or waiving the mandatory offer duty entirely ("opting-out").
