Switzerland Update: Management Transactions – Overview and Recent Changes

On 1 July 2005, the Regulation of Management Transactions (“MT”), also known as Directors’ Dealings, was incorporated into the Listing Rules (“KR”) of the SIX Swiss Exchange (“SIX”). In addition to Art. 56 LR, the SIX Directive on Management Transactions (“RLMT”), which also entered into force on 1 July 2005, is also relevant.

In a communication dated March 16, 2023, the Regulatory Board of SIX announced a revision of the provisions in the area of disclosure of MT. The purpose of this blog post is to provide an overview of the principles and modalities of disclosure of MT and then to present the latest change.

Purpose

The purpose of MT’s disclosure is twofold:

On the one hand, this is intended to ensure the supply of information to investors, as the board of directors (“BoD”) and management (“GL”) of a listed company have a knowledge advantage over external third parties as permanent insiders. In certain situations, therefore, the presence (or absence) of MT can provide (potential) investors with important or at least interesting information. In the positive case, for example, the making of management purchases can be seen as a signal of management’s confidence in one’s own company or that the current stock market price is seen as a favorable buying opportunity. However, since neither the name of the manager nor the purpose of a transaction is disclosed (and certain types of transactions are not disclosed at all), there is usually a certain amount of room for interpretation (or speculation), which can diminish the value of the information provided.

Furthermore, the prevention and prosecution of market abuses is to be achieved. In this respect, too, the creation and exploitation of advantages by insiders is to be prevented. By creating a level playing field with regard to the supply of information through the disclosure of MT – in addition to ad hoc publicity – the possibility of misuse is to be contained. In the event of a violation, the capital market regulations regarding insider trading and, if applicable, price manipulation must always be observed, which are of independent importance in relation to the KR.

Obligated persons

Only the issuer itself is held directly liable, as the KR is not aimed at natural persons. By obliging the issuer to instruct, train and regularly remind the natural persons subject to reporting requirements, it is intended to ensure that they in turn submit the underlying report to the company. In concrete terms, the internal organisation of the issuer should be such that they are made aware of their responsibility in sufficient detail by means of regulations, instructions and information, e.g. at committee meetings or training courses. The aim is for everyone affected to internalize a sufficient awareness of the problem of MT. Regardless of how this instruction is given, it should be adequately documented for reasons of verifiability and the persons concerned should be reminded of their duty every few months. The issuer must proactively monitor compliance with its internal regulations and, in the event of suspicion of violations, encourage the responsible persons to report.

The obligation to report to the issuer applies to transactions by the Board of Directors and senior executives of the Executive Board of issuers primarily listed on SIX. The decisive factor is the direct subordination to the CEO of the issuer. The relevant date is the date of assumption of the function or, if applicable, the operational activity. The obligation to report ceases to apply when leaving the relevant office, unless the function continues to be exercised in practice.

In principle, a breach of the reporting obligation can lead to liability on the part of the person subject to the reporting obligation vis-à-vis the issuer, for example under an employment contract, contract law or directors’ and officers’ liability. The issuer is not only entitled, but obliged, to take (legal) action against the responsible persons in the event of violations. If the issuer fails to report to SIX in good time, it may be sanctioned in accordance with the general rules of stock exchange law (Art. 60 et seq. LR), for example by means of a fine (theoretically up to CHF 1 million in the case of serious infringement and gross negligence) or reprimand. A look at practice shows that in the vast majority of cases, the Sanctions Commission of SIX (“SaKo”) issues reprimands and only rarely fines (even more rarely over CHF 100,000). Based on all circumstances of the individual case, the SaKo takes into account not only the (objective) severity of the infringement and the degree of fault, but also the issuer’s sensitivity to sanctions and its economic capacity.

Origin of the reporting obligation

The reporting obligation arises at the time of the conclusion of the corresponding commitment transaction and, in the case of stock exchange transactions, with the execution of the transaction.

If several transactions of the same type are carried out in the same type of securities by the same person on one day, only one report may be made for them. Offsetting between purchases and sales, on the other hand, is not permitted.

The person subject to the reporting obligation must report the transaction to the issuer no later than the second trading day (calculated according to the SIX trading calendar) after the reporting obligation has arisen. In turn, the issuer must forward the information to SIX within three trading days (until midnight) of receipt of the notification.

Reportable transactions

The subject of the reporting obligation is the purchase, sale and granting of rights to securities of an equity nature. The prerequisite is always that they are securities of the issuer. Subsequently, the assets of the person subject to the reporting obligation must be indirectly or directly affected.

This does not apply to transactions on the execution of which the otherwise reportable person cannot exert any influence, even if they affect his or her own assets. This exception is interpreted narrowly in practice. For example, transactions carried out within the framework of an asset management mandate are generally subject to the reporting obligation (unless, for example, a so-called pre-trading plan or Rule 10b5-1 insider trading plan with predefined and scheduled transactions is available). Another important exception to the reporting obligation exists for the issuer’s trading in its own participation rights, although in this case (ad hoc) information to the market is indicated. Transactions with a compensation function (e.g. on the basis of an employment contract) are also not subject to reporting, provided that the person concerned had no way of influencing the transaction (i.e. no right to choose between shares, options or cash payment). On the other hand, the subsequent sale or exercise of a granted option right must be reported. Securities lending is not subject to reporting requirements, as SIX does not believe that this sends any relevant signals to the market.

Transactions by related parties are also subject to reporting requirements, provided that they were carried out under the significant effective influence (not only the possibility of exerting influence) on the part of the person subject to the reporting obligation. These persons include, but are not limited to, spouses, life partners, descendants or legal entities if the person subject to the reporting obligation holds a management position there or (in)directly controls the company from an economic point of view.

Content and publication of the announcement, revision as of 1 May 2023

If there is a reporting obligation, the reporting person must forward a series of information to the issuer. In addition to (i) the name of the person subject to the reporting obligation, (ii) their date of birth must also be provided from 1 May 2023. This information, as well as (iii) the date of notification to the issuer, will not be made public (subject to disclosure to law enforcement authorities in the context of the prosecution of insider trading and market abuse).

Furthermore, (iv) the function of the person subject to the reporting obligation (VR / GL, executive / non-executive), (v) if relevant, information on the related party, (vi) the nature of the transaction (acquisition, sale, grant / write), (vii) more detailed qualitative and quantitative information on the traded values, (viii) the total value of the transaction, and (ix) the date of the commitment transaction or that of the transaction (in the case of stock exchange transactions) must be disclosed. This information is published by SIX and is publicly available via the SIX database for three years and can be filtered by date, issuer and type of transaction.

Issuers are free to decide whether the persons subject to the reporting obligation should use their own internal company form or whether they should use the reporting form provided by SIX. The SIX reporting form cannot be used for the issuer’s reporting to SIX. This is done via SIX’s MT reporting platform, which in turn cannot be used to transmit the reports from the reporting persons to the issuer.

If there is any doubt as to the accuracy of the information provided, the issuer is obliged to require the reporting person to make corrections.

Special constellations (SPAC, GDRs)

If a company decides not to approach the IPO via an IPO, but by purchase by a SPAC (Special Purpose Acquisition Vehicle), it should be noted that, in addition to the members of the Board of Directors and GL, the sponsors and founding shareholders of the SPAC are also considered to be notifiable persons, in the case of the so-called de-SPAC until one month after the end of the lock-up period (which lasts at least six months).

The MT disclosure requirement also applies to MT transactions with Global Depository Receipts and the underlying shares (such as the listed A-shares of the current Chinese GDR issuers on the SIX).

Summary

The obligation to disclose MT is a fundamental obligation of issuers under stock exchange law to maintain the listing. The issuer must ensure that the company’s top management is aware of its (contractual) reporting obligation to the issuer. In doing so, it must also be coordinated with the Insider Regulations and the handling of blackout periods (quiet periods, closed periods). A maximum of five trading days may elapse between the occurrence of the reporting obligation and its notification to SIX. In the event of violations of the reporting obligation, the issuer must take (legal) action against the person subject to the reporting obligation, otherwise the issuer can be sanctioned by the stock exchange. The issuer’s proprietary trading is exempt from the reporting obligation, the same applies to transactions of related parties over which the otherwise reportable person has no influence and, in principle, to transactions with a compensation function. The notification to the issuer and its notification to SIX must contain certain information, otherwise the issuer may be sanctioned, even in the event of incorrect information. From 1 May 2023, the date of birth must now be included in the report in addition to the name of the person subject to the reporting obligation, whereby this data will not be published and will not be passed on outside of criminal investigations.

By Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

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