Overview
On 8 July 2021, SIX Swiss Exchange ("SIX") announced the launch of a new equity segment "Sparks" for small and medium-sized enterprises ("SMEs") which has been approved in the meantime by the Swiss Financial Market Supervisory Authority FINMA ("FINMA"). This will give SMEs the opportunity to be listed on SIX from 1 October 2021 under simplified, SME-specific requirements. Following successful developments at other European trading venues (e.g. Alternative Investment Market (AIM) as a segment at the London Stock Exchange (LSE)), Sparks meets the interest for a regulated trading venue tailored for SMEs and enables public capital raising.
A listing on SIX provides access to experienced and well-capitalized Swiss and international investors. Due to publicly accessible information and reporting, the visibility of the company increases, while the tradability of the shares leads to increased liquidity. The new segment thus enables SMEs – which have a significantly lower capitalization than companies listed on SIX's main market segment – to raise capital efficiently and to benefit from the advantages offered by SIX as a renowned stock exchange recognized by both domestic and international investors.
In this context, the following key cornerstones should be noted in particular:
SME-Specific Listing Requirements
SMEs wishing to make use of the new stock exchange segment must comply with the following simplified listing requirements:
- Market capitalization of less than CHF 500 million;
- Company track record of more than two years (instead of three years as in the SIX main segment);
- A shareholder base of more than 50 investors;
- Equity capital of more than CHF 12 million;
- Capital increase of more than CHF 8 million in the course of the initial public offering (IPO), whereby a direct listing (without creation of new shares) will only be possible if the equity capital amounts to at least CHF 25 million;
- Freely tradable shares of more than 15% (of the outstanding shares); and
- Market capitalization of the freely tradable shares of more than CHF 15 million (see SME-specific free float below).
Compared to the main market segment, these listing requirements are lower. However, they are still higher than the requirements applicable to the Swiss OTC market. These SME-specific listing requirements are intended to continue to enable only high-quality issuers to gain access to the stock exchange. In addition, they aim to ensure adequate investor protection in the SME segment.
SIX will increase the capital requirements for the main market segment from the current minimum of CHF 2.5 million to CHF 25 million. This increase has been approved by FINMA and will come into effect on 1 October 2021.
The general obligation for issuers to publish a prospectus when making a public offer to acquire securities or requesting admission of securities to trading on a trading venue in Switzerland (unless an exemption from the prospectus requirement applies) will also apply to the Sparks segment.
SME-Specific Free Float
The liquidity of a share is a key element in the investment decisions of many investors. Liquidity is directly related to the market capitalization of the relevant company and the proportion of shares in free float. The lower the market capitalization, the more investors focus on the free float. At the time of listing, there must be sufficient free float and for the main segment, this is deemed to have been achieved if at least 20% of the issuer's securities outstanding in the same category are publicly held and the capitalization of the publicly held securities is at least CHF 25 million. For the SME segment, the amount of this free float has been reduced to 15% and a capitalization minimum of CHF 15 million at the time of the IPO.
SME-Specific Trading Model – Shorter Trading Hours
A separate trading model is also being set up for the Sparks segment, tailored specifically for companies with smaller market capitalizations. The model provides for a shortened trading window with continuous daily trading; opening auction at 3:00 p.m.; continuous trading until 5:20 p.m.; and a closing auction until 5:40 p.m.. Thus, the lower liquidity of the secondary market is taken into account by shortened continuous trading hours, which should allow to bundle liquidity.
Regulatory Requirements – After Stock Exchange Listing
As a consequence of a listing at the SME segment, companies must comply with the same increased regulatory requirements that also apply to companies listed at any other Swiss stock exchange. These are essentially the following:
- Financial reporting: An audited annual report and a semi-annual unaudited annual report must be prepared on the basis of a recognized accounting standard, and a corporate governance report must be published annually.
- Ad hoc publicity: The market must be informed of price-sensitive facts – i.e. facts whose disclosure is capable of having a significant impact on the share price.
- Disclosure of significant shareholdings: Investors in listed companies that individually or collectively reach, exceed or fall below certain thresholds – i.e. 3, 5, 10, 15, 20, 25, 331/3, 50 or 662/3% of the voting rights – must notify the SIX Disclosure Office and the company concerned within four trading days, and the company must publish the information via the Disclosure Office within two further trading days.
- Disclosure of management transactions: Members of the Board of Directors and the Executive Board of companies listed on SIX are required to inform their company of transactions involving participation, conversion or acquisition rights of their own company within two trading days of the conclusion of the transaction; the company subsequently reports these management transactions to SIX for publication.
- Other capital market requirements: Of course, the other requirements under capital market law, i.e. in particular the prohibitions of insider trading and market manipulation as well as public takeover law, are also applicable in principle.
- "Say-on-Pay" (OaEC): The compensation regulations must also be complied with, as is the case for all other Swiss listed companies.
Shift from the Sparks Segment to the SIX Main Market
It is envisaged that Sparks-listed companies may apply for a shift to the SIX main market after a certain period of time. However, they will be obliged to change to the main market if their average market capitalization over a period of 12 months exceeds CHF 1 billion.
Outlook
The new Sparks segment will open up new opportunities for both SMEs and investors. Suitable SMEs will primarily be able to raise capital more efficiently. The increased regulatory requirements, as with all listed companies, must be weighed against the advantages of a stock exchange listing. Investors will also benefit from various factors, in particular the same transparency and regulatory supervision as investors in the main market segment, the equal treatment requirement for all investors that applies to listed companies, ad hoc publicity requirements and, above all, greater liquidity of shares, optimization of pricing and execution of trades. Finally, we share SIX's view that the new Sparks equity segment meets a previously unmet need of SMEs and their investors for a customized and regulated trading venue, thereby establishing an ecosystem for the public raising of capital. The success of this new exchange segment will largely depend in particular on how market participants (banks and investors) approach it. Based on our many years of experience and expertise in stock exchange and capital markets law, we can help interested SMEs as well as investors to make the most of these exciting new opportunities.
Authors: Christian Schneiter, Peter Kühn
