SIX Swiss Exchange has revised its delisting directive and thereby put a new procedure in place for the delisting of shares from the primary Swiss stock exchange. In particular, shareholders will in the future have a right to challenge the continued listing period and the last trading day. Furthermore, details on the free float will in the future have to be provided in the delisting request. The revised SIX delisting directive came into effect on March 1, 2014.
New Delisting Procedure
The new delisting rules require the following major steps for the delisting of shares from SIX Swiss Exchange:
Delisting Request: The issuer must make a written request for the delisting of its shares to SIX Swiss Exchange. The delisting request must explain the reasons for the delisting and, pursuant to the new rules, provide details on the free float. The free float is calculated on the basis of all issued equity securities with the exception of those that are held by the issuer itself or by shareholders with a voting power exceeding 5%, serve as underlying of convertible rights and options or whose trade is restricted pursuant to lock-up agreements. The delisting request must be submitted no later than 20 trading days before the announcement of the delisting.
Delisting Announcement: The delisting is announced by way of publication of the delisting decision on the SIX website and by way of a so-called "official notice" of the issuer. The additional publication of a delisting notice is no longer required.
Last Trading Day: The last trading day is set by SIX Swiss Exchange taking into account the interests of investors and the market in general. From experience, the SIX usually accommodates a well-founded proposal by the issuer. Generally, the period between the delisting announcement and the last trading day must be no less than three months and no more than twelve months. When deciding on the continued listing period SIX takes into consideration, among other things, the free float and the liquidity and trading volume of the security in question. In the case of a merger, takeover or winding-up or where new equity securities are listed, the continued listing period may be shortened to a minimum of five trading days.
- Appeal by Shareholders: In the future, shareholders will have the possibility to appeal a delisting decision within 20 trading days of its publication to the SIX Appeals Board. Shareholders can, however, only challenge the period between the announcement of the delisting and the last trading day, but not the delisting as such. Decisions of the SIX Appeals Board can be appealed to the SIX Board of Arbitration within 20 trading days.
Assessment of the New Delisting Rules
The new delisting rules no longer require the maintaining of an off-exchange trading after the delisting. However, they do allow the SIX to set a longer period between the delisting announcement and the last trading day and, in doing so, give investors the opportunity to divest their shares before the delisting. Rather than maintaining an off-exchange trading after the delisting, the new delisting rules thus promote a reduction of the free float and a clearing up of the company's ownership structure prior to the delisting.
In addition, shareholders will in the future have the right to challenge the period between the delisting announcement and the last trading day and thus ensure an adequate period for divesting their shares. This new right of shareholders does, however, complicate transaction planning for the company and can make a delisting more expensive.
Except for the setting of an adequate continued listing period, the new delisting rules do not provide the SIX with any further means to enforce a reduction of the free float before a delisting. In many cases, however, the company itself, or a potential majority shareholder, will be interested in reducing the free float and clearing up the ownership structure before the delisting. For that purpose, the company may carry out a repurchase program in view of the delisting or the majority shareholder may launch a public takeover offer to buy out minority shareholders.
Increased Number of Delistings Expected
We expect to see an increase in the number of going private transactions over the next few years. For many listed companies the real issue is whether the increased costs of staying public are still justified by the benefits of having access to the capital market. The new say-on-pay rules, the tightened rules on insider trading, a strict ad hoc regime and the imminent segment reporting requirement under Swiss GAAP FER are only some examples of a much increased level of regulation.
In particular, we expect companies with a low market capitalization and/or a low profit ratio to consider going private since they have a reduced ability to raise capital and the costs of staying public have a disproportionate impact on their income statements.