Switzerland To Toughen Up On Stock Market Offences

by Ulrika Lomas, Tax-News.com, Brussels

04 March 2009

The Swiss commission of experts on stock market offences and market abuse, set up at the request of the Federal Council, has submitted its report to the head of the Federal Department of Finance.

The report contains proposals for new rules on insider trading and price manipulation. According to the experts, the offences should be brought more in line with the solutions applied in the EU and should no longer be contained in the Swiss Criminal Code, but instead form part of the Stock Exchange Act. The Federal Council will decide in the coming months what further action is required and which of the proposed measures should be implemented after it has received additional clarification from the FDF.

The prosecution of stock market offences and other forms of market abuse (Art. 161 and 161bis SCC; Art. 20 SESTA) is intended to guarantee the proper functioning of the market. However, according to the Swiss authorities, Articles 161 and 161bis SCC pose a number of substantive and procedural legal problems. In addition, some offences under foreign law are not offences in Switzerland. In view of this, in September 2007 the Federal Council instructed the FDF to set up a commission of experts. The commission of experts, headed by Prof. Rolf Watter, was given the task of conducting a detailed analysis of the existing regulations and responsibilities in relation to stock market offences and market abuse. It was composed of representatives of the federal administration (FFA and FOJ), Swiss Federal Banking Commission, Swiss Bankers' Association, SIX Swiss Exchange, economiesuisse, SwissHoldings and academics.

In its report the commission of experts proposed a new definition of the offences of insider trading and price manipulation. The report also concluded that: the offences should be brought more in line with the definition used in EU legislation; they should no longer be part of the Criminal Code but be contained in the Stock Exchange Act; and, the aggravated form of the offences of price manipulation and insider trading should qualify as predicate offences to money laundering.

For the prosecution of stock market offences (prohibition of insider trading, price manipulation, breach of duty to disclose shareholding interests), the commission of experts' preferred proposal was for the Office of the Attorney General of Switzerland and Federal Criminal Court to have jurisdiction. Currently it is the FDF that has jurisdiction.

The report also concluded that the Swiss Financial Market Supervisory Authority (FINMA) should prosecute stock market offences and certain other market-related conduct under administrative law as part of its case-by-case market supervision.

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