This article outlines the key features of the new equity prospectus regime applicable in Switzerland and includes an overview and analysis of the principal questions asked in relation to the new regime, approval and publication of the prospectus, the content requirements, the approval procedure and timing, passporting, amendments to the prospectus, prospectus liability and exemptions from the prospectus requirements.
On 15 June 2018, the Swiss Federal Parliament adopted the Financial Services Act (FinSA). Among other things, including MiFID II-type rules for the provision of financial services, the FinSA encompasses a new prospectus regime for the Swiss primary and secondary capital markets and – with certain customisations for debt and equity instruments as well as collective investment schemes, derivatives and structured products – is designed to apply uniformly to all financial instruments.
On 6 November 2019, following a customary consultation process in which interest parties were invited to submit comment statements, the Swiss Federal Government published the definitive text of the Financial Services Ordinance (FinSO). The FinSO sets out the federal administration's rules and regulations implementing the FinSA. The FinSA and the FinSO, including its Annexes 1 to 10, collectively, comprise the new Swiss prospectus regime.
The new Swiss prospectus regime came into effect on 1 January 2020, subject to a phase-in. Certain elements of the new regime apply with immediate effect, certain others only after a transition period currently expected to expire on 1 October 2020.
To a large degree modelled after the EU prospectus regime, the FinSA and FinSO introduce a number of new statutory requirements for issuers in the Swiss equity capital markets space. The regime also applies to offerings of equity securities without a listing and secondary-only equity offerings. New passporting options, the opportunity to incorporate disclosure by reference and a variety of prospectus exemptions provide room for flexibility.
Features of the new equity prospectus regime
Where is the new regime enshrined? The new regime governing equity prospectuses comprises the Financial Services Act of 15 June 2018 (FinSA) and the Financial Services Ordinance published on 6 November 2019 (FinSO). Annex 1 to the FinSO sets out the minimum required contents of an equity prospectus.
When will the new regime start applying? The new prospectus regime has been passed into law effective from 1 January 2020. However, as set out in more detail below (see below, Ex-ante approval and publication), the prospectus requirements will only fully apply following the lapse of a transition period that we currently expect to expire on 1 October 2020. In contrast, the prospectus exemptions under the FinSA are available to issuers, selling shareholders and underwriters immediately since 1 January 2020.
What framework will apply during the transition period? Issuers, selling shareholders and underwriters are allowed to conduct offerings in compliance with the new prospectus regime since 1 January 2020. The prospectus approval will, however, only be available once the review bodies have been licensed (see below, Ex-ante approval and publication). To the extent the offering participants elect not to follow the new prospectus regime during the transition period, the old regime continues to apply, which is bifurcated as follows:
To the extent that a public offering in Switzerland is being carried out, an offering prospectus within the meaning of Article 652a of the Swiss Code of Obligations is required.
To the extent that an admission to trading and listing on a Swiss trading venue (that is, SIX Swiss Exchange AG (SIX) or BX Swiss AG (BX)) is sought, a listing prospectus within the meaning of the applicable trading venue's listing rules, in their version still containing the requirements for a listing prospectus, is required.
In practice, the offering prospectus and the listing prospectus used to be combined in one prospectus complying with the requirements of both frameworks simultaneously.
What triggers the prospectus requirements? The new prospectus regime applies in connection with:
A public offering in Switzerland.
The admission to trading on a Swiss trading venue of any financial instruments.
An "offering" is an invitation to purchase a financial instrument that includes the essential information relating to the security in question and its terms and conditions (disregarding the price, which typically has not been set in an equity offering at the time of launch, that is, prior to pricing) and which enables and – in the case of an investment – requires a potential prospective investor to make an investment decision. Generic references to a financial instrument or issuer or the mere providing of factual information on a particular financial instrument or issuer (such as, for example, information typically included on an investor relations webpage, including a financial calendar) do not constitute an offering, nor does information shared in response to a prior unsolicited request made by a potential investor (reverse-solicitation exception). In particular, testing-the-waters and pre-sounding activities, pilot fishing and early-look meetings, non-deal road shows as well as research activities continue to be allowed under the new regime without triggering the prospectus requirements.
The offering is "public" if it is directed at an audience that is not limited. Private placements (including in connection with accelerated bookbuildings) will, therefore, still be possible without triggering a statutory prospectus requirement.
The term "public offering" encompasses both primary and, as a primer in the Swiss regime, secondary offerings, as well as combinations of each. However, in the case of a secondary-only offering, the requirements under the new regime apply to the selling shareholder but not to the issuer.
The prospectus requirements are also triggered whenever an admission to trading of the particular financial instruments on a Swiss trading venue is being sought. Admission to trading is part of any listing (but not vice versa). The definition of "trading venue" includes exchanges as well as multilateral trading facilities in Switzerland.
Which securities are deemed "equity securities"? As a rule, the new prospectus regime applies uniformly to all financial instruments; however, it provides for certain customisations for debt instruments, equity instruments, collective investment schemes, derivatives and structured products. This article focuses on equity securities. Against this background, the question arises which financial instruments are deemed equity securities under the new framework.
Shares of all classes (ordinary and preferred), participation certificates (Partizipationsscheine; bons de participation) and profit-sharing certificates (Genusscheine; bons de jouissance), including their non-domestic equivalents, are equity securities. In addition, financial instruments that are exchangeable or convertible into shares, participation certificates or profit-sharing certificates are deemed equity securities as soon as (but not before) such exchange or conversion has been initiated. In the case of exchangeable or convertible bonds or bonds with warrants, this means that prior to that time, the rules for debt securities apply. This finding is significant in two ways:
The exemptions from the requirement to have an approved prospectus at the time of launch or admission to trading that are available under the new regime in the debt capital markets context (not covered in this article) are available with respect to such bonds, allowing a fast time-to-market.
In the case of new issuers, the minimal offer period required by the new regime designed for IPOs (see below, Ex-ante approval and publication) does not apply to such bonds.
Ex-ante approval and publication
As a rule, the FinSA and the FinSO require that an equity prospectus be approved prior to the relevant offering being conducted or the relevant equity securities being admitted to trading, as the case may be (that is, on an ex-ante basis) by the relevant newly-established review body, which will be an authority licensed and supervised by the Swiss Financial Market Supervisory Authority FINMA (FINMA). The FINMA is currently expected to license the following two review bodies (each, a Review Body) before 31 March 2020:
Swiss Exchange Regulation AG (affiliated with SIX).
Regservices AG (affiliated with BX).
Once approved by the relevant Review Body, an equity prospectus is valid and good to be used (subject to supplements) for a period of 12 months.
Following its approval by the relevant Review Body, but prior to the launch of the relevant public offering or admission to trading, the equity prospectus needs to be published. The FinSA explicitly caters for electronic-only publication of an equity prospectus, provided that a printed copy is also made available upon request, free of charge.
In the case of an IPO, the new regime introduces a minimal offer period of six business days following publication of the prospectus. While this constitutes a new element of the legal framework, in our experience this is in line with customary market practice.
Under the FinSO, the ex-ante approval and publication requirements set out above will apply only following a transition period expiring six months after the FINMA has licensed the first Review Body, but no earlier than 1 October 2020. Before that date, the existing regime continues to apply and may be relied upon for public offerings and admissions to trading (see above, Introductory FAQs; What framework will apply during the transition period?).
Equity prospectus content requirements
Issuers, selling shareholders and underwriters will be happy to learn that the new prospectus regime brings the Swiss prospectus disclosure requirements in line with international standards, allowing for the liberal use of incorporation by reference.
A prospectus must be prepared in English, German, French or Italian. The required contents of an equity prospectus are set out in Annex 1 to the FinSO. An equity prospectus must feature a summary section that is easy to understand, setting out the most important disclosure included in the prospectus. With certain exceptions if such track record is not available, the two most recent sets of audited consolidated annual financial statements (each with prior year reference period figures) prepared in accordance with one of the generally accepted accounting standards covering the three most recent business years must be included in the prospectus. Other mandatory elements are risk factors, a business description including litigation and certain forward-looking statements with respect to the anticipated business outlook, a capitalisation table and disclosure relating to significant shareholders, directors and members of management.
The new framework explicitly provides for a wide range of documents that may be incorporated into the prospectus by reference. Any such documents must have been published prior to, or concurrently with, the date of the prospectus (so-called "forward" incorporation is not permitted).
Approval procedure and timing
Under the future regime, the approval procedure follows the principles of Swiss administrative procedure, catering for certain constitutional standards, including in particular the inspection of files, the right to be heard and judicial review.
The relevant Review Body's review focuses on completeness, coherence and linguistic comprehensibility:
Completeness implies a rule check against the equity prospectus content requirements set out in Annex 1 to the FinSO.
Coherence means the absence of manifest inconsistencies within the document.
Comprehensibility is currently expected to be a somewhat more lenient interpretation of the "plain English" requirement known in other jurisdictions.
Under the FinSA, the relevant Review Body is generally expected to issue its decision within a review period of ten calendar days. In the case of first-time issuers, the review period is 20 calendar days. A prospectus is not deemed approved if the relevant Review Body fails to issue its decision within the applicable review period.
To the extent the relevant Review Body finds the prospectus draft submitted for approval to be deficient, the relevant Review Body may reject the draft and require that it be re-submitted once the deficiencies have been remediated.
In practice, we do not expect the procedure to differ significantly from today's prospectus review by SIX and BX, respectively.
Automatic approval of certain foreign prospectuses/passporting
Foreign equity prospectuses that have been approved in accordance with the standards of certain foreign jurisdictions (to be determined and included on a list to be published by the relevant Review Body from time to time) will be deemed automatically approved by the relevant Review Body. Accordingly, any foreign-approved prospectus originating from a qualifying jurisdiction may immediately be used in connection with a public offering and/or admission to trading in Switzerland once it has been published and filed with the relevant Review Body as required under the FinSA.
Because the offer price and almost always the offer size are not known at the time of the launch of an equity offering (being typically determined within a bookbuilding procedure), the FinSA acknowledges that these datapoints cannot be included in the prospectus. Nevertheless, the FinSA requires that both the upper limit of the price range and the criteria applied in order to determine the final number of offered shares be disclosed in the prospectus. Once the offer price and the offer size are known, these datapoints need to be filed with the relevant Review Body. A prospectus supplement setting out merely such pricing terms (pricing supplement) is not required to be approved. The same applies to disclosure relating to other events already contemplated by the approved prospectus, such as the exercise by the underwriters of an over-allotment option or the approval of the transaction by certain corporate bodies or governmental agencies.
Amendments to the prospectus
In contrast, other (that is, unexpected) developments that are capable of materially affecting the valuation of the shares unfolding between the launch of an offering and the end of the offer period give rise to a duty to publish a prospectus amendment. As a rule, amendments to the prospectus are subject to the relevant Review Body's prior approval. The relevant review period is up to seven calendar days. A set of certain less significant events included on a list to be promulgated by the applicable Review Body from time to time, while still triggering a duty to publish a prospectus amendment, are exempt from the approval requirement. Whenever a prospectus amendment (other than a pricing supplement) is published, the offer period may not expire less than two calendar days after such publication. This statutory extension is designed to allow investors to withdraw their prior subscription in light of the new developments.
Notwithstanding the newly introduced prospectus approval by a Review Body, prospectus liability under the new regime does not substantially differ from the previous Swiss prospectus liability regime. Whoever participated in the drafting of the prospectus is potentially subject to prospectus liability.
Liability attaches if the prospectus includes inaccurate or misleading statements or fails to meet the legal requirements under the FinSA and the FinSO (in particular, it is incomplete). Not only the prospectus, but any other materials prepared and distributed in connection with the particular offering may trigger prospectus liability.
With respect to disclosure included in the summary, prospectus liability only attaches if such disclosure continues to be inaccurate or misleading if it is read together with the disclosure in the main body of the prospectus.
Prospectus liability for forward-looking statements is limited. More specifically, inaccurate or misleading statements in forward-looking statements will only give rise to prospectus liability if they were made against better knowledge, so long as appropriate cautionary legends and disclaimers are included. We expect the practical effect of this rule to be similar to the "bespeaks caution" doctrine established under the US federal securities laws.
The new prospectus regime also introduces criminal sanctions if inaccurate or misleading information is intentionally included in the prospectus or if the prospectus is not published as required under the FinSA. We expect the courts to apply this statutory criminal liability in a restrictive way, interpreting it to only relate to fact patterns that would, under the previous regime, have constituted fraud. Entities supervised by the FINMA are exempted from this criminal liability. The rationale for this exemption is that it shall be left to FINMA (rather than the public prosecutors) to take action towards banks, broker dealers and other FINMA-supervised entities.
Exemptions from the prospectus requirements
Absence of public offering and admission to trading
As set out in more detail above (see above, Introductory FAQs; What triggers the prospectus requirements?), the equity prospectus requirement under the FinSA applies whenever a public offering of equity securities in Switzerland is being conducted or an admission to trading of equity securities on a Swiss trading venue is being sought. In the absence of both elements, no prospectus requirement is triggered in the first place. Examples include the absence of an offer because no investment decision needs to (or can) be made (for example, where shares are issued as a dividend in kind, or awarded under employee ownership plans), or an offer that is extended only to a handful of selected individuals or entities, in each case absent an admission to trading. The prevailing view is that such transactions do not require an exemption because the prospectus requirement does not apply to them in the first place.
Exemptions under the FinSA
The FinSA provides for a set of explicit exemptions from the prospectus requirements otherwise applicable. Irrespective of the prospectus requirement under the FinSA to apply only after the transition period has lapsed, the exemptions under the FinSA are available to issuers, selling shareholders and underwriters immediately since 1 January 2020.
Exemptions based on the type of the offering. Certain types of public offerings are exempt from the prospectus requirements, including:
Public offerings limited to professional investors (for example, banks, asset managers, insurance companies, entities under prudential surveillance, enterprises and high-net-worth individuals in each case featuring a professional treasury unit).
Public offerings addressed to less than 500 potential prospective investors (irrespective of their eligibility as professional investors, that is, this figure of less than 500 may include retail investors).
Public offerings requiring a minimum investment of CHF100,000 for each investor individually.
Public offerings of securities with a minimum denomination of CHF100,000.
Public offerings of securities that, in a 12-month period, account for an aggregate investment amount not exceeding CHF8 million.
Exemptions based on the type of the security. Further exempt from the prospectus requirements are public offerings of certain types of securities, including:
Equity securities issued other than within the framework of a capital increase in exchange for equity securities of the same class as already issued.
Equity securities exchanged for equity securities of the same issuer or the same group of companies.
Equity securities delivered as a result of a conversion of debt instruments of the same issuer or group of companies.
Equity securities tendered in a public exchange offer, if disclosure is equivalent to a prospectus.
Equity securities offered within the framework of a merger, spin-off or transfer of assets, if disclosure is equivalent to a prospectus.
Securities issued by an employer to its current or former employees, executives or directors.
Exemptions in connection with admission to trading. Finally, the FinSA provides for certain exemptions from the prospectus requirement specifically in connection with the admission to trading. The most significant one relates to equity securities that are being issued within a period of 12 months (on a rolling basis) and account for less than 20% of the equity securities of the same class as already admitted to trading on the same Swiss trading venue. In addition, under the FinSA, certain exemptions in connection with the type of offering and type of security apply by analogy in connection with admissions to trading. The FinSO clarifies for which ones this is deemed to be the case and, if so, whether this is tied to any additional prerequisites having to be met.
At a glance
Here is a brief summary of the main points to consider:
The new prospectus regime in Switzerland came into effect on 1 January 2020.
Certain elements of the new regime apply with immediate effect, whilst other provisions will apply only after a transition period that is expected to expire on 1 October 2020.
Features of the new prospectus regime include:
new prospectus requirements are introduced, including for secondary-only transactions;
minimum prospectus content requirements are introduced, including with respect to the summary and disclaimers;
prospectus approval by the relevant review body (a newly created authority) is required prior to a public offering or an admission to trading in Switzerland;
a minimum subscription period for IPOs is introduced;
the passporting of certain foreign-approved prospectuses is provided;
a duty to supplement the prospectus is introduced in the case of material developments occurring during the offer period, potentially triggering a statutory extension of the offer period; and
a number of specific exemptions from the prospectus requirements is introduced.
We believe the new Swiss equity prospectus regime is a significant improvement vis-à-vis the status quo, tightening the legal framework where necessary, but relaxing it where this can be accommodated.
Professional qualifications. Dr iur/lic iur, University of Neuchâtel, 2000/1992; admitted to the Bar in New York, US, 1998; LLM, Columbia Law School, 1997; admitted to the Bar in Switzerland, 1994
Areas of practice. International and domestic M&A; public takeovers and defence; private equity; corporate law; corporate governance; equity offerings; IPOs
Languages. German, English, French
Counsel to the Underwriters on the IPO of Medacta Group SA on SIX Swiss Exchange in 2019.
Counsel to Alcon on the issuance of an aggregate of USD2 billion notes through a combined offering under Regulation S and to institutional investors in the United States of America pursuant to Rule 144A in 2019.
Counsel to SoftBank Vision Fund in its investment in GetYourGuide's Series E financing round in 2019.
New Equity Prospectus Regime to be Phased in Starting 1 January 2020; Homburger Bulletin, 6 November 2019.
Herr Ober, in meiner Suppe ist eine Fliege!, Vergleichsvereinbarung zwischen Aktionärsaktivist und Emittenten: Third Point vs. Campbell Soup, GesKR 3/2019, pp475-490.
Public mergers and acquisitions in Switzerland: overview, Practical Law Global Guide 2018/19, Thomson Reuters.
Management compensation in listed companies, Schulthess Manager Handbuch, 2018/2019.
Cornerstone Investors in IPOs, GesKR 3/2018, pp257-274.
Professional qualifications. LLM, Harvard Law School, 1999; Dr iur/lic iur, University of Zurich, 1996/1991; admitted to the Bar in Switzerland, 1994
Areas of practice. International and domestic M&A; public takeovers; equity capital markets; private equity; corporate law and governance
Languages. German, English, French
Counsel to Wanda Group/Infront Sports 6 Media in the IPO of Wanda Sports Group Co Ltd on NASDAQ in 2019 (USD1 billion).
Counsel to ADC Therapeutics SA in USD103 million Series E financing expansion in 2019 and in its (withdrawn) IPO on NYSE (USD1 billion).
Counsel to sellers in the sale of Therachon with its Achondroplasia programme to Pfizer and the spin-off of Therachon's Apraglutide programme in 2019 (USD850 million).
Counsel to Santhera in its Share Placement and Debt Financing in 2019.
New Equity Prospectus Regime to be Phased in Starting 1 January 2020, Homburger Bulletin, 6 November 2019.
Corporate governance and directors' duties in Switzerland: overview, Practical Law Global Guide 2019; Thomson Reuters.
Corporate Social Responsibility – Herausforderung für Private Equity-Manager und -Transaktionen, Europa Institut Zürich, Private Equity VI: Neue Mitspieler, neue Technologien, neue Themen, neues Recht, pp79-115; Schulthess, 2019.
Stock Exchange Equivalence, Homburger Bulletin, 4 December 2018.
Professional qualifications. Admitted to the Bar in New York, US, 2012; LLM, Columbia Law School, 2012; Dr iur HSG/lic iur HSG, University of St Gallen Law School, 2010/2006; admitted to the Bar in Switzerland, 2008; lic oec HSG, University of St Gallen Business School, 2003
Areas of practice. Public and private mergers and acquisitions; capital markets; IPOs; corporate law; securities regulation
Languages. German, English, Italian, French
Counsel to Santhera on its Share Placement and Debt Financing in 2019.
Counsel to the Underwriters on the IPO of Medacta Group SA on SIX Swiss Exchange in 2019.
Counsel to Liberty Global on the contemplated sale of UPC Switzerland to Sunrise in 2019.
New Equity Prospectus Regime to be Phased in Starting 1 January 2020, Homburger Bulletin, 6 November 2019.
Moving the Goalposts between Launch and Pricing, Europa Institut Zürich, Kapitalmarkt–Recht und Transaktionen XIV, pp57-92; Schulthess, 2019.