Download Capital Markets

Practice Area Overviews 2017
Capital Markets
Switzerland is an attractive capital markets environment: it combines the world's largest
international wealth management centre with a modern financial market infrastructure and
a competitive regulatory environment that meets international standards. This combination
provides both investors and issuers with attractive investment and financing opportunities.
Swiss capital markets regulation rests on the principle of providing all participants with free
non-discriminatory access to the Swiss markets, subject to adequate disclosure, and, for
financial intermediaries that both offer services and have a physical presence in
Switzerland, licensing requirements. At present, there are no Swiss registration
requirements for any debt or equity offering (public or private, primary or secondary
market), but the spectre of civil liability for inadequate or wrongful disclosure provides an
effective safeguard.
The SIX Swiss Exchange, the principal securities trading platform in Switzerland, has
established itself as a premier listing and trading platform for debt and equity securities,
structured products and other derivatives. Its modern, fully integrated value chain affords
automatic trading, settlement and clearing, and provides for an efficient, speedy listing
process. This framework has positioned the SIX Swiss Exchange as an attractive listing
platform for issuers seeking attractive timelines between going to market, admission to
trading, and listing, as well as the efficient trading of their securities. This is particularly
true for the issuance and trading of debt securities and structured products – not the least
because of the post-issuance approval process. Therefore, it does not come as a surprise
that leading Swiss and other European issuers such as Barclays, Credit Suisse and UBS
have chosen to list their regulatory capital instruments, such as Contingent Convertible
Bonds (CoCos) or other total loss-absorbing instruments such as bail-in bonds or Total
Loss-Absorbing Capacity (TLAC), on the SIX Swiss Exchange.
In October 2014, the Regulatory Board of the SIX Swiss Exchange cleared the way for the
listing of high-yield bonds (HYB) in Switzerland. This was particularly relevant since Swiss
corporate issuers have been increasingly tapping the HYB market over the last few years
(e.g., Sunrise, Swissport, gategroup, Orange, Schmolz + Bickenbach). Previously, the
listing of HYB on the SIX Swiss Exchange was not possible since the types of issuers that
typically issue HYB were usually not able to satisfy the listing requirements. In addition,
although the guarantors of HYB could have instead fulfilled these listing requirements as
so-called "substitute guarantors" (i.e., affiliates of the issuer that are permitted under the
SIX listing rules to satisfy such listing requirements on the issuer's behalf), they had to be
direct or indirect parent companies of the issuer in order to do so, which was not
palatable. As a consequence, HYB were generally listed in Luxembourg or elsewhere
outside of Switzerland. For companies with shares listed on the SIX Swiss Exchange, this
resulted in having to comply with several listing and disclosure requirements and
standards. The change in the Regulatory Board's practice that facilitated listing of HYB on
the SIX Swiss Exchange was its decision to also allow subsidiaries or sister companies of
the issuer that grant up-stream or cross-stream guarantees of the HYB to fulfil the role of
"substitute guarantor." The Regulatory Board also addressed any investor protection
concerns resulting from this change by simultaneously raising the disclosure standards
applicable to such substitute guarantors. Furthermore, HYB are typically guaranteed (via
both up-stream and cross-stream guarantees) by a number of guarantors that collectively
represent a fair share of group-wide EBITDA.
According to the figures published by the Swiss National Bank, investments in structured
products remained very stable over the last three years. As of the end of June 2015, over
CHF215 billion were invested in structured products held in Swiss securities accounts.
Compared with other types of securities, this represents over 3.5% of all securities held in
Swiss accounts. Around 27% of these structured products are held by private investors.
Institutional investors account for 68% and commercial clients for 5%. The SIX Structured
Products Exchange operates Switzerland’s only exchange for structured products, is a
recognized exchange under Swiss law and is directly regulated by the Swiss Financial
Market Supervisory Authority (FINMA). Since it was founded in 2007, the Swiss Structured Products Exchange
has helped shape the market and set new standards. Together with the Swiss Structured Products Association
(SSPA), it has sought to make structured products more transparent, serve as a source of information and
create a basis of trust for market participants. Trading on SIX Structured Products Exchange is very transparent,
with active market control and a fully electronic trading system that is generally believed to be unmatched
worldwide. Only products that have completed SIX Exchange Regulation's listing procedure and meet clearly
defined requirements with regard to investor safety are traded on SIX Structured Products Exchange. Trading is
subject to strict rules that require transparent and fair dealings for all market participants. This regulated market
ensures equal treatment of issuers and investors.
According to the SIX Swiss Exchange and the SIX Structured Products Exchange, as of 2 December 2015, a
total of 47,675,113 transactions had been conducted on the two exchanges since the start of 2015, which
reflected a year-on-year increase of 34.2%. In addition, as of the same date, trading turnover across all
securities had risen by 21.3% to CHF1.27 trillion since the start of 2015.
The Swiss federal government is in the process of overhauling Switzerland's financial market laws so that they
rest on four pillars: supervision, financial market infrastructure, financial institutions and financial services.
On 1 January 2016, the Swiss Federal Financial Market Infrastructure Act (FMIA, FinfraG) entered into force.
The FMIA established a regulatory framework for financial market infrastructure in conformity with European
Market Infrastructure Regulation (EMIR) and the Dodd-Frank Act, and introduced regulations applicable to the
OTC derivatives market.
In addition to that, on 4 November 2015, the Swiss Federal Council presented a draft for a new Swiss Federal
Financial Services Act (FFSA, FIDLEG), which has now passed the first chamber of the Swiss Parliament. The
FFSA would, inter alia, provide Switzerland with comprehensive primary market regulations. It would also
implement a documentation concept modelled after the European Prospectus Directive while at the same time
leaving sufficient room to preserve the basis for a highly competitive market. For instance, the FFSA's preapproval requirement for a prospectus will not apply to bond issuances, provided they meet certain
requirements. By preserving this particular advantage of the Swiss capital markets, the FFSA ensures that there
continue to be very attractive time-to-market conditions for issuers of debt instruments.
With respect to the provision of financial services on a cross-border basis, as currently drafted after the first
chamber of the Parliament, the FFSA would introduce a registration requirement for foreign service providers
and their personnel providing services to customers in Switzerland, with certain exceptions.
Also, on 4 November 2015, the Swiss Federal Council presented a draft for a new Swiss Federal Financial
Institutions Act (FFIA, FINIG), which would, inter alia, subject asset managers to licensing requirements and
(indirect) prudential supervision for the first time in Switzerland.