Underwriting arrangements

Types of arrangement

What types of underwriting arrangements are commonly used?

Fixed-price underwriting is a common form of underwriting arrangement in Switzerland, in particular with regard to debt offerings, and means that the whole issue is bought by the underwriter (or underwriters, in the case of a syndicate) at a fixed price. By contrast, ‘soft’ underwriting has increasingly become a customary underwriting arrangement for equity offerings, whereby the issue price of the securities is fixed after a book-building process. Arrangements by which the securities to be offered are ‘underwritten’ on a best-effort basis only are also often used.

Typical provisions

What does the underwriting agreement typically provide with respect to indemnity, force majeure clauses, success fees and overallotment options?

The underwriting agreement will typically contain an indemnity clause under which the issuer agrees to indemnify the underwriter against any losses, claims, damages or liabilities to which the underwriter may become subject, insofar as such losses, claims, damages or liabilities arise out of untrue statements or omissions in the prospectus or other materials prepared in connection with the issue, or the breach of representations, warranties and undertakings under the underwriting agreement. Depending on the nature and scope of the indemnification provisions, their enforceability may be limited by compulsory Swiss company law (such as the prohibition of redemption of the paid-in share capital). The underwriting agreement typically contains a clause allowing the underwriter to terminate the agreement in the case of force majeure (which may take the form of a suspension of trading, a moratorium on commercial banking activities, material adverse change to the financial condition of the issuer, material adverse change in international financial conditions, calamity, crisis and others). The underwriting arrangement usually provides for the payment of the fee only in the case of completion of the offering. In addition, the underwriting arrangement usually provides for an incentive fee paid by the issuer in its sole discretion. Finally, the underwriting agreement typically entitles the lead manager of the underwriting syndicate to over-allot and effect transactions in the newly issued securities with a view to stabilising or maintaining the market price of the newly issued securities at a level other than that which might prevail in the open market.

Other regulations

What additional regulations apply to underwriting arrangements?

Pursuant to the Act on Stock Exchanges and Securities Trading (SESTA), only firms with a securities dealer licence from FINMA may act as underwriters in Switzerland in a professional capacity unless the underwriting by a non-Swiss bank or securities dealer occurs on a mere cross-border basis.

The acquisition of securities of an issuer already listed on a Swiss exchange by the underwriters under the underwriting agreement is subject to the notification requirements for material shareholdings set forth in FMIA (which are usually met by disclosing the relevant information in the prospectus prepared for the offering), unless the underwriters have been granted an exemption by SIX. Also, underwriters are subject to the Swiss Bankers’ Association’s Directive on the Allocation of Equity-related Securities Offered by Way of a Public Offering in Switzerland (the Allocation Directive), which sets up minimum standards for the Swiss banking industry and whose purpose is to safeguard fairness and transparency of the allocation of securities in the context of a public offering.