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Market trends and climate
Market trends and climate
What is the general state of the securities markets in your jurisdiction, including any notable trends and recent transactions?
The legal system and regulatory environment are regarded as stable and progressive. Trading in securities (eg, shares, bonds, exchange-traded funds and structured products) is facilitated by well-established market infrastructures. As of 1 September 2018 there have been nine initial public offerings in 2018 on the SIX Swiss Exchange Ltd, which is Europe's leading exchange for life sciences companies. The most recent listing concerned a Swiss life sciences company. Switzerland provides an attractive capital market environment to both investors and issuers.
Recent regulatory trends include the adoption of the new Financial Services Act and Financial Institutions Act. The Financial Services Act and Financial Institutions Act are expected to be enacted in 2020. The Financial Services Act will introduce new rules and requirements for the offering of equity and debt securities and financial instruments, respectively. Such rules and requirements will apply to both the primary and the secondary market offering of securities.
Regulatory framework and enforcement
What is the primary legislation governing the offer and trade of securities in your jurisdiction (both primary and secondary markets)?
The Swiss legislation governing the primary and secondary securities markets consists of:
- the Code of Obligations;
- the Financial Market Infrastructure Act;
- the Stock Exchange Act; and
- the Collective Investment Schemes Act.
The Code of Obligations governs the prospectus requirements for the public offering of securities (bond and equity securities) and the Collective Investment Schemes Act governs the issue of structured products, while the Financial Market Infrastructure Act and Stock Exchange Act contain, among other things, provisions concerning the trading, clearing and settlement of securities. In addition, there are the listing rules, primarily those by the SIX Swiss Exchange, that govern the listing and trading in securities.
The new Financial Services Act and Financial Institutions Act are predicted to enter into force in 2020. The Financial Services Act will provide for the prospectus requirements in relation to the offering of securities and the duties of financial services providers (replacing the respective Code of Obligations and Stock Exchange Act) in the primary and secondary market. Such duties will be comparable with the obligations of a financial services provider pursuant to the EU Markets in Financial Instruments Directive II.
Regulatory authorities and enforcement trends
Which authorities regulate the securities markets in your jurisdiction and what is the extent of their enforcement powers?
Parliament, the Federal Council and the Swiss Financial Market Supervisory Authority (FINMA), as well as stock exchanges (in particular, the SIX Swiss Exchange) and the Swiss courts, regulate the securities market by adopting financial market laws, ordinances, guidelines, circulars and rules. FINMA is the main financial market regulator responsible for the supervision of banks, securities dealers and financial market infrastructures. Its primary objective is to protect creditors and ensure that the Swiss financial market operates correctly.
The legal basis for Switzerland’s supervisory activities is the Financial Market Supervision Act. The Financial Market Supervision Act and other financial market laws define which instruments FINMA can use to enforce supervisory law in each area. The term ‘enforcement’ covers all of FINMA’s investigations, proceedings and measures in relation to supervisory law violations. The enforcement tools at FINMA's disposal include:
- precautionary measures;
- declaratory rulings;
- industry bans;
- cease and desist orders and bans on trading;
- publication of rulings;
- confiscation or ordering the disgorgement of profits;
- withdrawal of authorisation;
- liquidation; and
The Administrative Procedure Act sets out the relevant procedure.
The public offering of bond and equity securities and the prospectus requirements are governed in the Code of Obligations and therefore are not subject to review by FINMA. Instead, the ordinary courts have jurisdiction over such disputes.
Have there been any notable public enforcement trends, including any key recent actions?
In 2018 FINMA launched enforcement proceedings against initial coin offering organisers and will enforce applicable financial market laws to such token issuers, if necessary. Generally, FINMA applies the existing capital markets rules in a technology-neutral way. Many of the coins offered are similar to securities and the business models are often subject to capital market requirements.
How is the court system structured in your jurisdiction? Are there any specialist courts with jurisdiction over securities-related actions?
The Federal Supreme Court is Switzerland's highest judicial authority. It decides on all appeals against rulings of:
- (supreme) state courts;
- the Federal Criminal Court;
- the Federal Administrative Court; and
- the Federal Patent Court.
The Federal Supreme Court ensures that Swiss federal law is applied correctly in individual cases. Securities-related actions may be heard, for example, by:
- state courts;
- the Federal Criminal Court; or
- the Federal Administrative Court.
There are no specialist courts with jurisdiction over securities-related actions.
What rules govern court procedure? Are there any provisions specific to securities cases?
Court procedure is governed depending on the instance and the legal question by one of the following acts:
- the Civil Procedure Code;
- the Criminal Procedure Code;
- the Federal Supreme Court Act;
- the Administrative Procedure Act; or
- the Federal Statute on Private International Law.
There are no specific provisions regarding securities cases.
What rules and procedures govern the appeal process?
The Civil Procedure Code governs the appeal process at state level, while the Federal Supreme Court Act lays down the appeal process and requirements before the Federal Supreme Court. For example, the Civil Procedure Code determines the minimum value of claims eligible for an appeal, as well as the form of and grounds for an appeal at state level. The appeal has a suspensive effect. In general, the following principles are applicable in civil law proceedings:
- the disposition principle – the parties decide on the beginning and end, as well as on the subject matter, of the proceedings; and
- the negotiating maxim – the parties must provide the facts and evidence relevant to the decision.
Recent case law and litigation trends
Have there been any notable recent cases involving private securities claims or trends in private securities litigation?
No, there are few precedents. However, private securities claims increased in the aftermath of the financial crisis, particularly in relation to losses suffered from structured products or inadequate portfolio management. The available precedents of securities litigation mainly focus on prospectus liability claims (eg, based on misleading information or omissions of material facts).
Court approach to securities cases
Would you consider your jurisdiction to be a more claimant-friendly or defendant-friendly forum for securities litigation?
Switzerland is more defendant-friendly, due to the fact that:
- the costs and risks for an investor (claimant) are high – a ‘loser pays’ rule applies;
- there are no instruments for mass claims; and
- the burden of proof often lies with the investor (claimant).
How do the courts in your jurisdiction address cross-border securities litigation?
In cross-border securities litigation the courts will address questions as to the place of jurisdiction and whether Swiss laws are applicable to the respective international case. The applicable laws and place of jurisdiction are governed by the International Private Law Act and the Lugano Convention.
The Lugano Convention governs the place of jurisdiction of its signatory states (ie, most EU member states). The claimant may choose to sue the defendant at the defendant's residence or in a special jurisdiction, depending on the legal nature of the claim. There is a mandatory jurisdiction in favour of consumers. The Lugano Convention does not provide any specific provision on securities litigation.
The place of jurisdiction concerning states which are not signatories to the Lugano Convention is governed by the International Private Law Act. According to the act, the claimant may choose to sue the defendant at the defendant's residence or in a special jurisdiction, depending on the legal nature of the claim. There is a mandatory jurisdiction in favour of consumers. However, unlike the Lugano Convention, the International Private Law Act also provides for special jurisdiction with respect to corporate matters or prospectus liability. For example, a claimant may sue at the place of the security’s offering.
With regard to the law concerning prospectus liability, the law at the place of the security’s offering may apply, unless:
- a contractual claim is established, in which case the law of the state in which the services are provided applies; or
- the claimant is a consumer, in which case the law of the state in which the consumer is domiciled applies.
The Financial Market Supervisory Authority is not involved in private securities litigation.
Causes of action
Which causes of action can be asserted by claimants in relation to the offer and trade of securities and which are most commonly asserted?
In relation to the public offer of bond and equity securities, the cause of action is primarily the prospectus liability (the respective tort liability). Pursuant to Articles 752 and 1156(3) of the Code of Obligations, any party which has intentionally or negligently made or distributed incomplete, false or misleading statements that do not comply with the legal requirements for the offering prospectus or similar instruments in relation to equity or debt securities is liable to the investors (respective acquirer of the securities in the secondary market) for any damage caused. In other words, any prospectus or similar document that is incorrect or contains misleading information or information which does not comply with legal requirements may trigger directors' and officers' liability.
Information is considered incorrect where it does not correspond objectively with the facts. The incorrect, omitted or misleading information must be material. Such liability claims can also be brought against any party that is involved in the preparation of the prospectus.
In relation to secondary market activities, the cause of action is primarily under:
- the Stock Exchange Act;
- the Financial Market Supervision Act;
- agency law pursuant to the Code of Obligations; and
- the SIX Swiss Exchange trading rules.
Directors’ and officers’ liability
In what circumstances and to what extent can directors and officers be held liable for misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities?
Under the prospectus liability pursuant to Article 752 of the Code of Obligations, directors and officers may be held liable if they have been involved in preparing the prospectus and acted intentionally or negligently with respect to misrepresentations, omissions or misleading information. Article 754 of the Code of Obligations also provides for a separate directors' and officers' liability. The code states that directors and all other persons engaged in the management or liquidation of the company are liable to the company and the individual losses or damages arising from an intentional or negligent breach of duty.
Can liability be limited in any way?
In what circumstances and to what extent can secondary actors (eg, attorneys, auditors and underwriters) be held liable for misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities?
Under the prospectus liability pursuant to Article 752 of the Code of Obligations, attorneys, auditors and underwriters may be held liable if they have been involved in preparing the prospectus and acted intentionally or negligently with respect to misrepresentations, omissions or misleading information. Underwriters may establish a due diligence defence, provided that they are not experts and have not employed advisers to provide relevant information. Article 755 of the Code of Obligations provides a separate liability with regard to auditors. This states that all persons engaged in auditing the annual and consolidated accounts, the company's incorporation, a capital increase or a capital reduction are liable to the company and the individual shareholders for losses arising from any intentional or negligent breach of the auditor’s duties.
Can liability be limited in any way?
Who may file securities claims? Are there any restrictions on foreign claimants? Who are the most common claimants (eg, pension funds, institutional investors)?
Purchasers of securities in the primary and secondary markets may file liability claims. There are no restrictions on foreign claimants. The most common claimants are institutional investors.
Pleading and evidentiary standards
What pleading and evidentiary standards apply to securities claims, including with regard to:
(a) Proof of reliance on the relevant misrepresentation, omission or other fraudulent conduct?
Proof of reliance applies. The relevant misrepresentation, omission or other fraudulent conduct of the securities issuer and the purchase of the securities by the investor must be linked. Regarding the so-called ‘transaction causation’, a claimant must show that it would not have purchased the securities had it known that the prospectus was:
- inaccurate or incomplete;
- included misleading information; or
- had omitted information.
Such proof of causation is not a strict proof, but must demonstrate high probability.
(b) Proof of loss causation?
Proof of loss causation applies. The claimant must show that the action or misconduct of the securities issuer caused the damage. Such proof of causation (actual and proximity cause) is not a strict proof, but must demonstrate high probability.
(c) Materiality requirements?
The materiality requirements provide that incorrect or misleading information must be material for the damages in order for a statement or information contained in the prospectus to be actionable by the defendant.
(d) Scienter requirements?
Securities claims based on the prospectus liability (the respective tort liability) may be brought against issuers or any persons involved in the offering of equity or debt securities that acted wilfully or negligently. It suffices to claim that, for example, the parties involved should not have known that the information was incorrect. Regarding negligence, an objective standard applies. Actions are classed as negligent if a diligent and experienced person in the same situation would have acted differently.
(e) Any other requirements, standards or considerations?
What pre-trial disclosure/discovery mechanisms are available to support claims, if any?
Swiss law does not provide for a pre-trial disclosure or discovery mechanism.
What rules and standards govern non-disclosure of documents on the grounds of professional privilege or other confidentiality considerations?
The Civil Procedure Code provides measures that the court or parties may take in order to ensure that documents are not disclosed. For example, Article 156 of the Civil Procedure Code states that the court must take appropriate measures to ensure that taking evidence does not infringe the legitimate interests of any parties or a third party (eg, business secrets). A defendant may assert that the disclosure of information could be harmful to the company.
Bank secrecy is protected under Article 47 of the Swiss Banking Act. However, it is not absolute and does not apply in the context of criminal proceedings.
What interim measures are available to claimants in securities cases?
There are no specific interim measures for securities cases. The Civil Procedure Code generally provides for three types of interim measure:
- preventive measures;
- regulatory measures; and
- performance measures.
To secure monetary claims, a claimant may request an attachment order (pursuant to the Debt Enforcement and Bankruptcy Act) or other ex parte measures, provided that the requirements are met in the respective securities cases. Applications for interim measures are often rejected, in particular regarding financial loss claims, as they are not generally considered an irreparable harm.
Statute of limitations
What is the statute of limitations for filing claims?
The limitation period for claims based on prospectus liability is provided in Article 760 of the Code of Obligations, which gives a relative and absolute limitation period. Accordingly, such securities claims become time-barred five years after the date on which the injured party learned of the losses and of the person liable. However, the statute of limitations is generally 10 years after the date of the action that caused the loss. Criminal law provides for longer limitation periods where the misconduct also constitutes a criminal offence.
What defences are available to defendant issuers and broker-dealers?
Available defences include the materiality of the statement or information. For example, a party may show that a misleading statement did not lead to an investor buying the securities or that incorrect information was not the cause of the damage.
What preliminary procedural mechanisms are available to defendants to counter claims, if any (eg, motions to dismiss)?
In general, the court assesses whether the case has been filed in the correct venue or whether the court has jurisdiction. The defendant may also assert that the complaint was not served correctly, or the claimant failed to include a party which must participate in the case.
Damages and costs
What rules and standards govern the calculation and award of damages?
The calculation of damages depends on the cause of the action on which the claim is based. As a rule, a party may claim monetary compensation for damages directly caused by the defendant. ‘Damage’ constitutes the involuntary reduction of a person's assets (ie, the diminution of assets or non-diminution of liabilities, or the increase in liabilities or non-increase in assets). Such damage is classed as ‘economic damage’, which may be awarded by the courts. However, courts are reluctant to award normative damages, such as commercialisation damage or frustration damage.
With regard to prospectus liability claims, damages are the difference between the securities purchase price and the securities market price after the correct information has been disclosed to the public or market. However, when determining the damages, further factors which usually also affect market prices (eg, market outlook or business circles) should be taken into account. Such factors may reduce the value of securities claims.
Are damages capped?
Yes. As a rule, compensation for damages may not exceed the economic value of the loss suffered.
Are punitive damages allowed?
No. A claimant may request compensation only for damages suffered from the defendant's misconduct or action. Parties to a contract may agree on liquidated damages or contractual penalties. However, such contractual compensatory claims are not comparable to punitive damages.
Are any other remedies available?
N/A. The Financial Market Supervisory Authority has various penalties under the Financial Market Supervision Act.
Who bears the costs of proceedings? Can this burden be shifted in any way?
The Civil Procedure Code states that the unsuccessful party is liable for the litigation costs. The costs include the court costs (eg, for taking evidence and ruling on the case) and the costs incurred by the successful party (eg, the reimbursement of the necessary outlays and the attorney fees). If no party is entirely successful, the court has discretion to allocate costs in accordance with the outcome of the case. For example, if the claimant was caused to litigate in good faith, it may not be liable for the entire cost, even if it lost the case. Unnecessary costs are charged to the party that caused them, regardless of which party won the proceedings.
How are costs calculated? Does interest accrue on costs?
Litigation costs depend on the dispute's value. However, attorney fees are charged at an hourly rate. The exact cost calculation is provided by cantonal law and may differ from canton to canton. The costs of the proceedings do not accrue interest.
What rules and procedures apply to the provision of security for costs?
For the provision of security, the Swiss rules distinguish between the advance payment of court costs and the security for the party’s costs. With regard to the court costs, the court may demand the claimant to make an advance payment up to the amount of the expected costs. However, a defendant may request security on the costs from the claimant only if:
- the claimant has no residence or registered office in Switzerland;
- the claimant appears to be insolvent or owes costs from prior proceedings; or
- there is a considerable risk that the compensation will never be paid.
Are class actions or any other collective proceedings available for securities claims in your jurisdiction? If so, what is the procedure for their formation and what benefits do they afford claimants? Are class actions formed on an opt-in or opt-out basis?
The Civil Procedure Code does not provide for class actions. It also limits the options for collective proceedings, which include the joinder of parties and group actions.
Regarding the joinder of parties, the parties can join their claims and appear together in court, as either plaintiff or defendant, provided that the facts of the case are similar and the claims are based on similar legal grounds. The advantages of such collective proceedings are that:
- there is only one evidentiary proceeding;
- it is time and cost-efficient; and
- there is only one judgment.
Parties are free to choose a mandatory representation. Each investor must individually decide whether to join the securities litigation. Investors not joining the securities litigation still have the right to file their claims in a separate lawsuit.
Regarding group actions, only organisations of national or regional importance which are authorised to protect the interests of their members by articles of incorporation may bring a group action. However, group actions can be brought only where the personality rights of the group members have been infringed or violated. The group's remedy must not be damages.
Regarding collective proceedings, Parliament is in the process of revising the Civil Procedure Code and may expand the scope of group actions on an opt-in basis, as well as implement the possibility to achieve a group settlement on an opt-out basis.
Is public or third-party litigation funding available in your jurisdiction? If so, what rules, standards and procedures apply?
Yes, both public and third-party litigation funding are available. There are no specific rules on third-party litigation funding or litigation finance. However, lawyers must:
- act in the best interest of their clients;
- remain independent; and
- avoid conflicts of interest.
Lawyers must not agree on contingency fees or success fees.
Is insurance available to cover the costs of litigation?
Yes. Legal expenses insurance is generally available.
Rules and procedure
What rules and procedures govern the settlement of securities litigation?
Settlements are possible at any time, either in or out of court.
Settlements in court or court-recorded settlements have the same effect as court decisions, once recorded by the court. There are no specific rules on the settlement of securities claims. Therefore, general rules apply to securities-related cases. If the court considers the settlement appropriate, significant and efficient, it will:
- accept the proposed settlement;
- make a record; and
- terminate the proceedings.
The costs are allocated to the parties according to the parties' agreement.
Settlements out of court are qualified as private law contracts and this right can be enforced in civil litigation. Therefore, parties may reach an out-of-court settlement and the claimant may then withdraw the lawsuit.
How common are settlements in securities-related cases?
There is no official data regarding securities-related cases. However, in general, approximately 60% of all civil litigation is settled between the claimants and the defendants.