Legal Aspects of Finance Slide Set 4 Markets, Parties and Trading The Stock Exchange and Other Public Trading in Securities (National) Regulation: Sources, Overview Matti Rudanko

Act on Book Entry System and Settlement Activity Part 1: General Part 4: Specific Provisions Scope of Application Supervision Definitions Custodian Nominee Registration Damages Liability Administrative Penalties etc. Part 2 (Ch. 2 – 5) Securities Center and Clearing Community Licence, Administration and Activities Clearing Parties Part 3 ( Ch 6 – 7) Book Entry System Book Entries Book Entry Accounts Operator Liability Fund Incorporation of Securities in the System Legal Aspects of Finance 3

Clearing and settlement of trades Needed for the transfer of title to securities and verification of payment book-entry system: no paper certificate is issued for a book entry book-entry account of the owner or assignee Nasdaq OMX handles the clearing of derivatives trading and the business connected with the deposit and registration of ownership Euroclear Finland handles the clearing of securities trading and the business connected with the deposit and registration of ownership Legal Aspects of Finance 3 3

Euroclear Finland Legal Aspects of Finance 3 4

Most common corporate actions Private placement (New shares are issued in derogation from shareholders’ pre-emptive rights, for instance due to a corporate acquisition or initial public offering) Split / Reverse Split Bonus issue and Share issue against payment Acquisition of own shares Redeeming of own shares Increase in reserve funds Merger/demerger Legal Aspects of Finance 3 5

Business areas of Euroclear Euroclear (Finland) consists of three business areas: Clearing & Settlement Services, Account Operator Services and Issuer Services Clearing & Settlement Services takes care of settlement services for equities and all issuing, depository and settlement services for money market instruments and wholesale market bonds. Account Operator Services operates central book-entry register and offers book-entry account services to account operators and individual investors. Issuer Services offers CSD services to security issuers. The main services are shareholder lists, insider register, general meeting services, corporate actions and yield payments. Legal Aspects of Finance 3 6

The European Multilateral Clearing Facility The European Multilateral Clearing Facility N.V. (EMCF), founded in March 2007, is Europe's largest cash equities clearing house and offers clients a cost-effective way of confidently managing settlement risks. EMCF offers Central Counterparty Clearing House, or CCP, services to more than 50 financial-service providers in 19 European countries, using ten Multilateral Trading Facilities (MTFs)and exchanges: e.g.NASDAQ OMX Nordics (Denmark, Finland & Sweden) Legal Aspects of Finance 3

What does Central Counterparty Clearing mean? Central counterparty clearing involves the legal transfer of obligations to a central counterparty, which becomes the buyer to the seller and the seller to the buyer. With the CCP counterparty risk - or the risk that one party to a trade suffers losses because the other party cannot fulfil its obligations - is mitigated. Central counterparty clearing enables netting of trades, which provides significant cost savings from lower margin requirements, fewer settlements, and simpler operations. Legal Aspects of Finance 3

Act on Securities Accounts Ch.1 General Provisions Ch 2 Securities Accounts Account Right Order of Priority Ch 3 Safekeeping of Securities Right of the Custorian to make Entries with Legal Validity towards Third Persons Insolvency of the Custodian Ch 4: Specific Provisions Liability for Damages Supervision Legal Aspects of Finance 3

The Finnish Securities Complaint Board A self-regulatory body (private sector; only recommendations) The Securities Complaint Board offers consultative advice concerning the content of securities market legislation and related authority orders, the application of contractual terms, good commercial practices in securities trading and other issues related to securities practices. The service is free of charge and available to all non-professional investors, who are customers of banks, investment firms or mutual fund companies. The operations of the Securities Complaint Board abide by the principles of impartiality, transparency, reciprocity, efficiency, legality, freedom and representation defined in the Commission Recommendation (2001/310/EC) for out-of-court and alternative arbitration bodies and methods involved in the resolution of consumer disputes. Legal Aspects of Finance 3