In September , the Swiss parliament approved a draft bill to revise the Swiss Federal Act on Stock Exchanges and Securities Trading SESTA and thus create a more stringent capital market criminal and regulatory law New SESTA. The revision aims at strengthening the Swiss financial market's integrity and competitiveness by adapting Swiss capital market criminal and regulatory law to international standards, thereby creating rules which efficiently sanction stock market offences and market abuse.

The revision also includes amendments to the disclosure law and the takeover law. Currently, insider trading is an offence which can be committed only by the types of persons expressly mentioned in Article of the Swiss Penal Code SPC who have access to material, non-public information due to a privileged position Sonderdelikt , such as directors or managers, auditors or agents of the company issuer , members of a government agency or public servants, or any auxiliary persons to any of the aforementioned persons.

In contrast, employees without direct contact with the decision-makers of such a company, shareholders or persons who incidentally become aware of confidential information are not covered by this provision. This narrow definition was heavily criticised as failing to sufficiently protect the functioning of the financial market and the equal treatment of investors.

In order to improve this situation and to harmonise Swiss law with the law of most EU member states, the definition of insiders has been expanded.

All three kinds of insiders are liable if they realise a financial profit by taking advantage of the inside information through the purchase or sale of securities which are traded on a Swiss stock exchange or a similar institution or through the use of financial instruments derived from such securities. Primary insiders are also sanctioned if they realise a financial profit by disclosing the inside information to another person or by taking advantage of this information to recommend to another person the purchase or sale of securities publicly traded in Switzerland or the utilisation of derivative financial instruments.

By including the latter, transactions with overthe- counter OTC products will be expressly sanctioned. Under current law, this is disputed.

To ensure compliance with the Financial Action Task Force FATF Recommendations and to enable the ratification of the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism of 16 May , Article 40 paragraph 2 New SESTA provides for a new qualified form of insider trading under which primary insiders are punished with imprisonment of up to five years or a fine if they realise a financial profit exceeding CHF1 million U.

Because such insider trading conduct will now qualify as a crime, it can serve as a predicate offence Vortat to money laundering. Besides the criminal assessment of insider trading, the revision will also include a regulatory provision on insider trading Article 33e New SESTA. The Ordinance on Stock Exchanges and Securities Trading SESTO will be revised New SESTO and contain exceptions so-called safe harbour rules to Article 33e New SESTA.

In contrast to its criminal equivalent, Article 33e New SESTA does not require that the offender act wilfully and for financial profit and that such financial profit is realised.

The statutory offence of price manipulation will also be moved from the SPC Article bis to the New SESTA Article 40a. However, the changes to this provision will contain only minor editorial revisions and precisions. Like insider trading, and for the same reasons, price manipulation will be treated as a crime after the revision, and can therefore serve as a predicate offence to money laundering if the offender realises a financial profit of more than CHF1 million U. Due to this widened scope of application, the aforementioned safe harbour rules in New SESTA will have to be observed.

Like Article 33e New SESTA, Article 33f New SESTA will also apply to all market participants and not require the element of financial profit. Currently, the offences of insider trading and price manipulation are prosecuted on a cantonal level and brought before cantonal courts.

Pursuant to Article 44 New SESTA, the Federal Prosecutor's office is the new prosecution body. The court of first instance deciding on these crimes is the Swiss Federal Criminal Court, and appeals are judged by the Swiss Federal Supreme Court. The reason for the new federal competence is bundling the special know-how necessary to prosecute and judge insider trading and price manipulation.

However, the Federal Department of Finance remains competent to prosecute violations of the obligation to disclose significant shareholdings Article 41 New SESTA , which is discussed below, and of the obligation to make an offer Article 41a New SESTA. Currently, the obligation to disclose shareholdings that exceed, fall below or reach certain thresholds is imposed on holders of shares in Swiss companies whose equity securities are, at least partially, listed on a Swiss stock exchange Article 20 paragraph 1 SESTA.

As a new feature, companies with their registered seats in foreign countries whose equity securities are mainly listed in Switzerland will also be covered by this provision. There will also be additions in terms of supervisory measures. The existing instrument of suspending voting rights, currently the responsibility of the civil court judge, which has proved to be too unwieldy in practice, will newly be available to FINMA.

In addition, FINMA will be given the opportunity, if there are sufficient indications of a violation of the obligation to disclose significant shareholdings, to not only suspend the voting rights of the offending shareholder, but also to issue a ban on further purchases of shares of the respective company Article 34b New SESTA. These measures are to be revoked as soon as either the offender fulfils the reporting requirement or FINMA ascertains that there is no reporting requirement.

The existing Article 41 SESTA sanctions the violation of the obligation to disclose significant shareholdings according to Article 20 and Article 31 SESTA in case of public takeover offers , with fines of up to double the purchase price.

The New SESTA addresses the criticism expressed in academic writing that this punishment is draconian, and foresees a maximum fine of CHF10 million U.

Four key changes are foreseen for the takeover law, in addition to a few minor changes with regard to procedural matters. Like its disclosure law equivalent Article 20 paragraph 1 SESTA, discussed above , the scope of application of Article 22 paragraph 1 SESTA will be widened to the effect that foreign companies also may be subject to Swiss takeover rules if they are mainly listed either fully or partially in Switzerland.

Under current law, in case of mandatory offers or socalled ''mixed voluntary'' offers i. The consequence of this existing rule was that the bidder could, to a limited extent, pay the selling majority shareholders a higher price control premium for their shares prior to publication of his public offer to purchase than that offered to the minority shareholders in his public offer to purchase. Under New SESTA, the opportunity to pay a control premium is removed Article 32 paragraph 4.

The same as FINMA under the disclosure law counterpart Article 34b New SESTA, discussed above , the Swiss Takeover Board is given the authority to issue a suspension of voting rights and a ban on additional purchases in the case of sufficient indications of failure to observe the obligations to make an offer Article 32 paragraph 7 New SESTA.

The revision of SESTA, in particular moving the offences of insider trading and price manipulation to the New SESTA and the adaptations to EU rules, will bring welcome changes to and a uniform codification of the capital market criminal and regulatory law, as well as improvements of the Swiss financial market's competitiveness and reputation on an international level.

This applies particularly to the widened definition of offenders under the revised insider trading rules. In addition, the transfer of the competence to prosecute insider trading and price manipulation to the federal level makes sense, because the cantonal authorities sometimes do not have the resources and expert knowledge to deal with these complex issues.

Furthermore, the abolition of the control premium is expected to have a positive effect on investment behaviour and, as a result, the flow of liquidity in Switzerland. In any case, it remains to be seen whether the revised law eventually proves to be effective in legal practice. The text of the current version of the Federal Act on Stock Exchanges and Securities Trading, in German, can be accessed at http: An unofficial English translation of the current version of the Federal Act on Stock Exchanges and Securities Trading can be accessed at http: The new and revised articles contained in the New Federal Act on Stock Exchanges and Securities Trading, in German, can be accessed at http: The content of this article is intended to provide a general guide to the subject matter.

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New Amendments To Swiss Federal Act On Stock Exchanges And Securities Trading Strengthen Rules On Insider Trading, Introduce Other Important Changes - Corporate/Commercial Law - Switzerland

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New Amendments To Swiss Federal Act On Stock Exchanges And Securities Trading Strengthen Rules On Insider Trading, Introduce Other Important Changes Last Updated: The New SESTA is expected to enter into force on April 1, This article discusses the key changes to SESTA.

Insider Trading Currently, insider trading is an offence which can be committed only by the types of persons expressly mentioned in Article of the Swiss Penal Code SPC who have access to material, non-public information due to a privileged position Sonderdelikt , such as directors or managers, auditors or agents of the company issuer , members of a government agency or public servants, or any auxiliary persons to any of the aforementioned persons.

Article 40 New SESTA foresees the following groups of insiders: A primary insider is sanctioned with imprisonment of up to three years, or five years if qualified, as discussed below , or with a fine Article 40 paragraph 1 New SESTA ; A ''secondary insider'' currently referred to as a tippee is a person who receives targeted information from a primary insider such as a journalist who is informed beforehand about confidential information or a person who obtains information through the commission of a crime or misdemeanour.

A secondary insider is sanctioned with imprisonment of up to one year or with a fine Article 40 paragraph 3 New SESTA ; and A person who accidentally receives inside information ''accidental insider'' is sanctioned with a fine Article 40 paragraph New SESTA.

Price Manipulation The statutory offence of price manipulation will also be moved from the SPC Article bis to the New SESTA Article 40a. Competence of the Federal Prosecutor Currently, the offences of insider trading and price manipulation are prosecuted on a cantonal level and brought before cantonal courts.

Changes to the Disclosure Law Currently, the obligation to disclose shareholdings that exceed, fall below or reach certain thresholds is imposed on holders of shares in Swiss companies whose equity securities are, at least partially, listed on a Swiss stock exchange Article 20 paragraph 1 SESTA. Changes to the Takeover Law Four key changes are foreseen for the takeover law, in addition to a few minor changes with regard to procedural matters.

Concluding Remarks The revision of SESTA, in particular moving the offences of insider trading and price manipulation to the New SESTA and the adaptations to EU rules, will bring welcome changes to and a uniform codification of the capital market criminal and regulatory law, as well as improvements of the Swiss financial market's competitiveness and reputation on an international level.

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