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Stock market offences and market abuse: Revision of Swiss law

Andreas Moll

On December 17 2010, the Swiss Government, the Federal Council, decided to improve protection of the Swiss financial centre by extending the supervisory competence of the Swiss Financial Market Supervisory Authority (Finma). The Federal Council intends to draw up a dispatch of the amended law by Spring 2011 and to open consultation proceedings in the Federal Parliament thereafter.

Under Swiss law, insider trading and price manipulation are punishable under the Criminal Code. In addition, certain market practices not falling under the Criminal Code but still considered to be damaging to the Swiss financial centre (for example front running and scalping) are defined and sanctioned by Finma if committed by supervised institutions.

If passed in the proposed form, the rules of accepted market practices would in future also apply to market participants that are now not supervised, such as hedge funds or other private investors (general market supervision, or allgemeine Marktaufsicht). The suggested amendments would establish regulations regarding the market abuse equivalent to Directive 2003/6/EC of the EU of January 28 2003 on insider dealing and market manipulation.

The proposed regulations do not constitute criminal law, but only supervisory law regulations. Finma will not be entitled to sanction breaches of the regulations with criminal measures; it will, however, be able to (i) issue a warning to the relevant company; (ii) publish its decision; and (iii) confiscate unlawful profits.

In Switzerland, it is much more difficult than in most other countries to predict whether parliament will approve a law suggested by the government. The Federal Council is not made up of ministers of the parties that hold a majority coalition in the parliament, but rather of members of all significant political parties. It is meant to govern the country while being detached from political parties' particular interests.

As a result, the Federal Council can not simply assume that parliament will vote in favour of the amendments it proposes. It must be expected that certain interest groups, such as Swissbanking or Economiesuisse will try to influence members of parliament. This might well result in the Federal Parliament passing only an amended, lighter version of the regulations.

Andreas Moll

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