Category Archives: Securities

EU Shareholder Rights Directive: Action required for Switzerland?

Efforts to amend the EU Shareholder Rights Directive have lost momentum. The most recent resolution of an EU institution has been passed more than a year ago by the EU parliament. The Brexit vote in the United Kingdom has cast further doubt on the directive’s future design. Nevertheless, efforts to improve the governance of European companies and to strengthen the rights of shareholders will continue and the most recent proposal to amend the directive is likely still indicative of the future form and shape of corporate governance in the EU. Third countries like Switzerland should closely monitor the EU’s next steps on the directive, analyze any gaps and decide whether such gaps should be closed.

By Thomas U. Reutter (Reference: CapLaw-2016-43)

Capital “On Demand”: Equity Lines / Share Subscription Facilities for Swiss Listed Companies

Many listed companies are seeking “on-demand” capital solutions that are tailor made to their specific needs. These companies often enter into arrangements with an institutional investor, whereby the company has the right to call specified amounts of cash from the investor against issuance or delivery of a certain amount of shares in return. Such arrangements are often referred to as “equity lines”, “equity distribution agreements” or “share subscription facilities”. This article explores how such agreements are best structured for Swiss listed and incorporated issuers from both a corporate and a capital markets perspective.

By Thomas Reutter / Annette Weber (Reference: CapLaw-2016-18)

Amended Swiss Rules regarding Disclosure of Significant Shareholdings in Listed Companies in Switzerland

On 1 January 2016, revised regulations regarding the disclosure of significant shareholdings in listed Swiss companies or non-Swiss companies with their primary listing in Switzerland entered into effect. In most respects, the new law restated the former regulations. However, the legislation also introduced some significant changes and imposes important new disclosure obligations, in particular upon asset managers who discretionarily exercise the voting rights of the shares held or managed on behalf of their clients.

By Hans-Jakob Diem (Reference: CapLaw-2016-19)

New Transparency Rules in Respect of Holders of Bearer Shares and Qualified Beneficial Owners of Unlisted Shares of Swiss Companies

On 12 December 2014, the Swiss Parliament adopted the Federal Act Implementing the Revised Financial Action Task Force (FATF) Recommendations of 2012. The Act provides new and revised provisions in the field of anti-money laundering and criminal law which were discussed in CapLaw No. 3/2015 (p. 6 et seqq.). The Act also introduced new reporting obligations of acquirers of bearer shares and in respect of beneficial owners of 25% or more of the share capital or voting rights of unlisted Swiss companies. These changes, which entered into effect on 1 July 2015 and affect shareholders and companies alike, are discussed in this article.

By Hans-Jakob Diem / Tino Gaberthüel (Reference: CapLaw-2015-55)

The European Capital Market Union

Only two years ago the European Union adopted two regulations that serve as the pillars of the European Banking Union. In October 2015, the Commission launched an ambitious plan to establish a European Capital Market Union until 2019. Although both “unions” go in the same direction – an even more integrated and centralized European financial market – and use the same institutional instruments, they are based on a different motivation.

By Peter Sester (Reference: CapLaw-2015-56)

The Launch of the Real Estate Investment Foundation

While Swiss investment foundations have been used quite often for indirect real estate investments of Swiss pension plans in the past, recently, more market participants have been using the real estate investment foundation as an attractive real estate offering for their eligible clients. In addition to the general regulatory and civil law framework that applies to all Swiss investment foundations, some specific requirements must be observed for the launch of real estate investment foundations. This article aims to provide a brief overview on the applicable general and specific requirements.

By Sandro Abegglen / Luca Bianchi / Thomas Hochstrasser (Reference: CapLaw-2015-41)

Inaugural Issuance of TLAC-Eligible Senior Unsecured Notes by Swiss Bank

On 26 March 2015, Credit Suisse issued USD 4 billion senior unsecured debt that intends to be eligible to meet the Financial Stability Board’s proposal and envisaged future Swiss standards for instruments counting towards a total loss absorbency capacity (TLAC) requirement.

By René Bösch/Benjamin Leisinger (Reference: CapLaw-2015-15)

1) Background and Developments

a) The Idea

In January 2010, in a guest article in The Economist, Paul Calello, the late head of Credit Suisse AG’s investment bank division, and Wilson Ervin, Credit Suisse AG’s former chief risk offi cer, proposed a new process for resolving failing banks. Their article entitled From bail-out to bail-in presented the idea to give authorities the power to order a reduction in creditors’ claims (haircut) or a conversion of such claims into equity of the insolvent debtor (debt/equity-swap, together with a haircut referred to herein as “bail-in”) before public money (taxpayers’ money) must be used to protect the systemically relevant functions, or operating liabilities generally, of a bank.

b) The Financial Stability Board’s Recommendations for G-SIFIs

On 20 October 2010, the Financial Stability Board (FSB) recommended that financial institutions that are clearly systemic in a global context (so-called G-SIFIs) should have loss absorption capacity beyond the minimum agreed Basel III standards. In particular, the FSB recommended that G-SIFIs should have a higher share of their balance sheets funded by capital and/or by other instruments which increase the resilience of the institution as a going concern. Amongst others, the FSB mentioned a quantitative requirement for debt instruments or other liabilities represented by “bail-inable” claims, which are capable of bearing loss within resolution, thus enabling creditor recapitalization and recovery while maintaining vital business functions. At the Seoul Summit in 2010, the G20 leaders endorsed these recommendations.

In October 2011, the FSB published its Key Attributes of Effective Resolution Regimes for Financial Institutions (the Key Attributes) and proposed that resolution authorities should have a broad range of resolution powers available, including the possibility to carry out bail-in within resolution as a means to achieve or help achieve continuity of essential functions either (i) by recapitalizing the entity hitherto providing these functions that is no longer viable, or, alternatively, (ii) by capitalizing a newly established entity or bridge institution to which these functions have been transferred following closure of the non-viable firm (the residual business of which would then be wound up and the firm liquidated).

c) Switzerland’s Bail-in Regime

On 1 September 2011, Switzerland enacted a revised bank resolution regime in the Banking Act, that explicitly provided for the possibility of the Swiss Financial Market Supervisory Authority FINMA (FINMA) to order a bail-in. On 1 November 2012, Switzerland’s Ordinance of the FINMA on the Insolvency of Banks and Securities Dealers (BIO-FINMA) entered into effect. In Section 3 on “Corporate Actions”, articles 47 to 50 BIO-FINMA contain more detailed rules on how FINMA can order a bail-in. By virtue of the amendments of the Banking Act and the enactment of the BIO-FINMA, Switzerland was among the first movers to meet the requirements recommended for financial institutions by the FSB in the Key Attributes.

Once the new amendment to the Banking Act enters into effect (envisaged for late in 2015 or early in 2016), FINMA’s resolution and bail-in authority also applies to bank holding companies of a financial group that are domiciled in Switzerland (see CapLaw-2014-23 for more information).

d) The Financial Stability Board’s Status Report and TLAC Proposal

On 2 September 2013, the FSB reported to the G20 on the status of the progress to end the too-big-to-fail (TBTF) conundrum. While showing some progress, the FSB also stated that many FSB jurisdictions need to take further legislative steps to implement the Key Attributes fully, in substance and scope. The FSB highlighted that important areas where jurisdictions need to act relate to the vesting of resolution authorities with bail-in powers and other resolution tools, powers for cross-border cooperation and the recognition of foreign resolution actions. Additionally, the FSB mentioned that a systemically important financial institution (SIFI) needs to have sufficient resources to absorb losses in resolution – a feature it referred then to as “gone concern loss absorbing capacity” (GLAC). The FSB committed to prepare proposals for consideration by end-2014 on the nature, amount, location within the group structure, and possible disclosure of such GLAC.

On 10 November 2014, the FSB published its proposal for a common international standard on now so-called total loss absorbency capacity” (TLAC) for G-SIFIs (the Proposal) and asked the industry for consultation and comments until the consultation period ended on 2 February 2015. The Proposal specifi cally featured a draft term sheet (the Term Sheet) with the proposed features of TLAC instruments. According to the Term Sheet, the objective of the proposed minimum TLAC requirement is to ensure that G-SIFIs have the loss absorbing and recapitalization capacity necessary to help ensure that, in and immediately following a resolution, critical functions can be continued without taxpayers’ funds (public funds) or financial stability being put at risk. In order for debt instruments not qualifying as regulatory capital of the G-SIFIs to be eligible to count towards the TLAC requirement, the Term Sheet states that certain elements must be met.

The core features for such external TLAC set forth in Sections 8 through 17 of the Term Sheet are as follows: (1) issued and maintained by resolution entities, (2) being unsecured, (3) having a minimum remaining maturity of at least one year, (4) not qualifying as an “excluded liability” (i.e., not be an insured deposit, not be callable on demand without supervisory approval, generally not be funded directly by the issuer or a related party of the issuer, not qualify as a derivative or have derivative-linked features, not arise otherwise than trough a contract, not be senior to normal unsecured creditors under the relevant insolvency law, not be excluded from bail-in), (5) being able to absorb losses prior to excluded liabilities (to be read as “prior to creditors of operating liabilities of the bank”, in the authors’ understanding based on the stated objective of TLAC and the comments to the FSB Proposal in the consultation) in insolvency or in resolution by way of either contractual, statutory or structural subordination without giving rise to material risk of successful legal challenge or compensation claims, (6) not be subject to set off or netting rights that would undermine their loss-absorbing capacity in resolution, (7) not be redeemable without supervisory approval, except when replacing eligible TLAC with liabilities of the same or better quality and the replacement of liabilities is done at conditions which are sustainable for the income capacity of the bank, (8) either be governed by law of the jurisdiction in which the relevant resolution entity is incorporated, or if subject to the law of another jurisdiction, include legally enforceable contractual provisions recognizing the application of resolution tools by the relevant resolution authority if the resolution entity enters resolution, unless there is equivalent binding statutory provision for cross-border recognition of resolution actions, and (9) contain a contractual trigger or be subject to a statutory mechanism which permits the relevant resolution authority to expose TLAC to loss or convert to equity in resolution.

e) Switzerland Endorsing the Idea of TLAC

In light of the FSB Proposal, the Final Report of the Group of Experts on the Further Development of the Financial Market Strategy dated 1 December 2014 (called after the chairman of that Group of Experts, Professor Aymo Brunetti, the “Brunetti Report”) also recommended to supplement the Swiss TBTF regime with binding TLAC requirements so that sufficient liabilities are available to make recovery or orderly resolution possible. On 18 February 2015, the Swiss Federal Council in its evaluation report on Switzerland’s TBTF provisions endorsed this recommendation and stated that Switzerland intends to change its laws to introduce a TLAC requirement even if the Brisbane Summit of the G20 does not result in an internationally agreed standard for TLAC.

2) Credit Suisse’s Inaugural Issuance

On 23 March 2015, Credit Suisse launched its inaugural issuance of newly designed senior debt instruments that are designed to meet the requirements proposed by the FSB’s Term Sheet. The USD 1.5 billion 2.750% Senior Notes due 2020 and USD 2.5 billion 3.750% Senior Notes due 2025 (together, the Notes) have been issued by Credit Suisse Group Funding (Guernsey) Limited, a special purpose vehicle to implement the new funding strategy, on 26 March 2015 on a Rule 144A/RegS basis and are guaranteed by Credit Suisse Group AG (CSG). The Notes will be listed on the SIX Swiss Exchange Ltd.

For Swiss withholding tax reasons, the Notes are issued by a special purpose vehicle. However, the Notes are guaranteed by CSG, the relevant Swiss resolution entity in FINMA’s preferred single-point-of-entry resolution strategy. Because of this, the Notes are indirectly (and economically) issued by CSG. It is also worth noting in this context that in the Swiss bail-regime, a guarantee does not present a security that would limit the availability of the respective liability for bail-in under the BIO-FINMA. Notwithstanding this, upon the opening of restructuring proceedings with respect to Credit Suisse AG and/or CSG, a prepackaged automatic issuer substitution results in CSG becoming the principal debtor under the Notes and the guarantee falling away as a result of this. By means of these contractual features, the Notes would be debt of the resolution entity and completely unsecured during restructuring proceedings with respect to CSG and, hence, subject to a statutory bail-in by FINMA, once CSG is subject to the bail-in regime.

Because the Notes will be the debt of the holding company CSG at the relevant time, the Notes would absorb losses through a statutory full or partial conversion and/or write-down ordered by FINMA in the course of restructuring proceedings with respect to CSG. As senior unsecured instruments, the Notes could only be fully or partially converted into equity of CSG or written-down under Swiss law after shareholders of CSG and holders of subordinated debt of CSG. However, the structure and mechanics of the Notes, through structural subordination, permit that the instruments be fully or partially converted or written-down by FINMA prior to creditors of operating liabilities of the bank Credit Suisse AG. Moreover, as the Notes are governed by New York law, recognition of the exercise of such a resolution power by FINMA in the competent New York courts is safeguard by appropriate contractual clauses (recognition and acknowledgement clause). The Notes also contain a set-off prohibition and require approval by FINMA prior to redemption, to the extent required at the time. In order to deal with the issue of Swiss withholding tax application after an automatic issuer substitution, the Notes provide for the exchange of the Notes for newly issued notes if, after the completion of the Swiss restructuring proceedings with respect to CSG, the Notes have not been fully written-down and/or converted into equity of CSG and CSG is or would be required to deduct Swiss withholding tax from interest payments on the Notes under Swiss laws in effect at such time.

An internal down-streaming instrument issued by a non-Swiss branch of Credit Suisse AG to Credit Suisse Group Funding (Guernsey) Limited and its features provide for the basis of a recapitalization by FINMA of the bank Credit Suisse AG or other Credit Suisse group companies in the course of restructuring proceedings with respect to CSG without opening restructuring proceedings with respect to Credit Suisse AG or such other group company (single point of entry, top-down) and for the down-streaming instrument absorbing losses prior to any operating liabilities of Credit Suisse AG.

3) Outlook

It remains to be seen what the final proposal and requirements published by the FSB for TLAC-eligible instruments will be. The final FSB TLAC requirements are expected by the end of 2015 and, according to the existing FSB Proposal, are intended to apply by 1 January 2019.

However, in light of the Swiss Federal Council’s clear commitment to implement a TLAC requirement, the obvious need to further address the TBTF conundrum, and Switzerland’s past history as a fast mover in this area, Swiss systemically relevant financial institutions have already shifted their focus on developing instruments that serve the purpose of protecting operating liabilities, and the systemically relevant functions in particular, in a gone concern and to allow a recapitalization of the bank (or banks) of the financial group in line with FINMA’s single-point-of-entry resolution strategy, i.e., without opening restructuring proceedings with respect to the bank itself.

René Bösch (
Benjamin Leisinger (

Is a Regulation of Proxy Advisers needed in Switzerland?

Proxy adviser have now come to play an important role for listed companies in Switzerland with a significant free float. The breadth of the phenomenon is relatively recent and coincided with the enactment and entry into force of the Ordinance against Excessive Compensation for listed companies (OaEC; Verordnung gegen übermässige Vergütungen in börsenkotierten Unternehmen (VegüV)), which mandates, inter alia, a binding shareholder resolution on say on pay. The increased power of proxy advisers also gives rise to some concerns and to the question of how to address them.

By Thomas U. Reutter (Reference: CapLaw-2015-16)

SIX overhauls regulatory standards for listing

SIX Exchange Regulation, the regulatory body of the main Swiss stock exchange, has confirmed plans to overhaul its regulatory listing standards. The sub-division into Main Standard and Domestic Standard will be abolished and issuers may choose between an International and a National or Swiss Standard. The only major difference between the two new regimes will be the applicable financial reporting standard. IFRS or US GAAP must be used on the International Standard. Issuers who do not wish to report under either of these two standards, but opt for Swiss GAAP FER instead, will be listed on the National Standard. The changes are planned to become effective on 1 July 2015.

By Thomas U. Reutter (Reference: CapLaw-2015-1)

Growing Appetite for Dim Sum Bonds – The Global Rise of the Renminbi

As the free flow of funds in and out of China is still regulated by the Chinese government, the Chinese financial market is basically closed to foreign investors. Although there are visible steps towards opening China’s tightly controlled capital markets, the length of time it will take for China to fully open up its financial system can only be estimated. In the meantime, participants in global financial markets will increasingly focus on the development of the country’s offshore renminbi market. This article gives an overview of the offshore renminbi denominated bonds at the center of China’s master plan to internationalize its currency.

By Daniel Heiniger (Reference: CapLaw-2015-2)