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The Sanction Commission of SIX Swiss Exchange has imposed a CHF 100,000 fine on UBS Inc. for publishing too late the publication of internally available information relating to expected losses in summer 2007. This delay represented a breach of the provisions on ad hoc publicity.
SIX Exchange Regulation ordered an investigation into a breach of the stock exchange rules on ad hoc publicity by UBS Inc. (UBS) in 2007. This investigation also focused on whether UBS's 2008 annual report breached provisions of the directive on information relating to corporate governance. The Sanction Commission examined both breaches together and decided to impose a fine of CHF 100,000.
Ad hoc publicity
In accordance with stock exchange rules, an issuer must inform the market of any potentially price-sensitive information as soon as it becomes itself aware of the main points of such information. If an issuer has made any statements on its future business performance that may give rise to certain expectations on the part of the market, it is obliged to correct these expectations by issuing an ad hoc notice (profit warning). The deadline for issuing such a notice is not the point at which the specific financial results are actually available, but the point at which the issuer becomes aware that a profit or loss is predictable. On 14 August 2007, UBS issued a press release on its results for the second quarter of 2007, which also contained a profit warning for the third quarter of 2007. A second profit warning was issued on 1 October 2007. The Sanction Commission has established that UBS was too late in issuing this information.
On 13 February and 3 May 2007, UBS issued confident press releases. The investigation revealed that the relevant UBS committees were already aware of the impact of the sub-prime problem on its investment banking operations by the end of July/beginning of August 2007. They knew that at the end of July, the bank's investment banking segment would be facing substantial valuation losses, which in turn could have a significant impact on the results of the group as a whole. UBS should have informed the market of this immediately. Given that knowledge the profit warning issued on 14 August was too late.
By no later than early September, the responsible committees within UBS were aware that it would not be posting a profit at prior-year levels, but in fact a loss. However, UBS decided not to inform the public of this until 1 October, when the quantifiable quarterly figures would become available. By early September, UBS should no longer have withheld the information pertaining to this expected loss from its shareholders. In accordance with the directive on ad hoc publicity, exact quantifiable figures are not always required for the information to be true, clear and complete; seriously presented and probable loss expectations suffice in such cases. These had already been known since early September and were reliable – not highly speculative anymore; as such, they should have been disclosed immediately.
Information on corporate governance
Amongst other things, the directive on information relating to corporate governance requires that information be provided on the content and method of determining compensation for the members of the board of directors and the executive board of an issuer. This information must be clear and easily understandable.
UBS's 2008 annual report stated that when determining remuneration, the levels of remuneration received by people in similar functions outside of UBS were taken into account. No more detailed information was provided in this respect. The Sanction Commission determined that the information UBS provided was too general in nature. It did not give investors a clear overview of the criteria used in determining remuneration. The same also applies to the information relating to the level of base salary received by senior executives, which stated that this remuneration was established to be appropriate for the role of each senior executive on an individual basis. The report should have listed the criteria that are used to assess the duties and functions of these staff.
Sanction
The main factor considered in setting the level of the fine was the breach of the ad hoc publicity rules in 2007. The sanction took into account the gravity of the breach, the degree of fault, the sensitivity of UBS to the penalty and the fact that UBS was not subject to any sanctions in the preceding three years.
SIX Exchange Regulation obligates issuers to inform the market of any potentially price-sensitive facts that have arisen in the issuer’s sphere of activity and are not yet known to the public, as per Art. 53 of the Listing Rules. Price-sensitive facts are facts that are capable of triggering a significant change in market prices. The related announcement is to be made in a way that ensures the equal treatment of all market participants. Such announcements must be truthful, comprehensible and complete.
SIX Exchange Regulation’s Directive Corporate Governance (DCG) obligates issuers to publish key aspects regarding their top management, including the composition of the highest governing bodies, how they interact and how they are compensated, as well as the auditing body and the shareholders’ participation rights. This information helps investors to assess the properties of securities and the quality of issuers.
Information on ad hoc publicity can be found at:http://www.six-exchange-regulation.com/obligations/publicity_en.html
For more information on corporate governance, please visit:
http://www.six-exchange-regulation.com/obligations/governance_en.html
This sanction decision will be put on the website of SIX Exchange Regulation shortly. Previous sanctions pronounced in connection with ad hoc publicity and corporate governance can be found at:
http://www.six-exchange-regulation.com/enforcement/sanction_decisions_en.html
