LEGAL ASPECTS OF FINANCE Lecture 5 Case 5 Matti Rudanko

Case 5: Insider Trading Case Tasks: - see next slides

Possible Tasks and Questions 1 4.1. Try to solve the legal question above in aa), i.e. the damages remedy question. 4.2. Try to solve the same question in b) applying the rules of "traditional " damages law. Legal Aspects of Finance 5

Possible Tasks and Questions 2 4.3. Consider the significance of economic theories such as Efficient Capital Markets Hypothesis and Market Fraud Theory in this case (point b above) for the application of damages liability. Consider in general the damages liability in connection with insider dealing, "a victimless crime" Legal Aspects of Finance 5

Topics and Issues Definition and Main Regulation of Insider Trading ”Disclose or Abstain” Scope of and Exemptions from Application Insider Disclosure and Registers Insider Crimes Liability for Damages and other Special Questions Liability for Damages in Insider Cases Transactions in Own Shares Disclosure Duties, Insider Information and Business Secrets Information Crimes, Information as Property Legal Aspects of Finance 5

EU Regulation on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (see next slide) MAR: REGULATION (EU) No 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive) Legal Aspects of Finance 5

Accepted Market Practices (Repealed) COMMISSION DIRECTIVE 2003/124/EC of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards the definition and public disclosure of inside information and the definition of market manipulation (Repealed) COMMISSION DIRECTIVE 2004/72/EC of 29 April 2004 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards accepted market practices, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers' transactions and the notification of suspicious transactions Legal Aspects of Finance 5

NASDAQ OMX Guidelines for Insiders Finnish Regulation SMA ch. 12 The Penal Code, ch. 51, sect. 1 - 5 NASDAQ OMX Guidelines for Insiders FSA Standard 5.3: Declarations of insider holdings and insider registers Legal Aspects of Finance 5

Regulation, Cont. (National) Securities Markets Act (14.12.2012 / 746; http://www.finlex.fi/fi/laki/kaannokset/2012/en20120746.pdf ) Ch. 12 on market abuse Ch. 3 – 5 on disclosure duties Marketing and issuance of securities, duty of disclosure (SMA ch. 1 sect. 2 – 4) Legal Aspects of Finance 5

Transactions in Own Shares Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council (Market Abuse Directive) as regards exemptions for by-back programmes and stabilization of financial instruments (Commission Buy-back Regulation) Rule of the Stock Exchange Ch. 5.3 Guidelines of the Stock Exchange on the Own Shares of a Listed Company FSA Standard 1.3 (26.10.2007; not yet in English; ”The Reliable Administration and Arrangement of Business Activities”) Legal Aspects of Finance 5

COMMISSION REGULATION (EC) No 2273/2003 of 22 December 2003 Safe Harbours implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments COMMISSION REGULATION (EC) No 2273/2003 of 22 December 2003 Legal Aspects of Finance 5

Safe Harbours, cont. MAR: REGULATION (EU) No 596/2014 art. 5) The prohibitions provided for in this Directive shall not apply to trading in own shares in ‘buy-back’ programmes or to the stabilisation of a financial instrument provided such trading is carried out in accordance with implementing measures adopted in accordance with the procedure laid down in Article 17(2). Legal Aspects of Finance 5

Safe Harbours, cont. COMMISSION REGULATION (EC) No 2273/2003 In order to benefit from the exemption provided for in Article 8 of Directive 2003/6/EC, stabilisation of a financial instrument must be carried out in accordance with Articles 8, 9 and 10 of this Regulation. Legal Aspects of Finance 5

Safe Harbours, cont. COMMISSION REGULATION (EC) No 2273/2003 The issuer must not, when executing trades under a ‘buy-back’ programme, purchase shares at a price higher than the higher of the price of the last independent trade and the highest current independent bid on the trading venues where the purchase is carried out The issuer must not purchase more than 25 % of the average daily volume of the shares in any one day on the regulated market on which the purchase is carried out Legal Aspects of Finance 5

Safe Harbours, cont. COMMISSION REGULATION (EC) No 2273/2003 In order to benefit from the exemption provided by Article 8 of Directive 2003/6/EC, the issuer shall not, during its participation in a buy-back programme, engage in the following trading: (a) selling of own shares during the life of the programme; (b) trading during a period which, under the law of the Member State in which trading takes place, is a closed period Legal Aspects of Finance 5

Safe Harbours, cont. COMMISSION REGULATION (EC) No 2273/2003 Paragraph 1 shall not apply if the issuer is an investment firm or credit institution and has established effective information barriers (Chinese Walls) subject to supervision by the competent authority, between those responsible for the handling of inside information related directly or indirectly to the issuer and those responsible for any decision relating to the trading of own shares (including the trading of own shares on behalf of clients), when trading in own shares on the basis of such any decision. Legal Aspects of Finance 5

Case 5: Slides Slide sets: 6: Market Abuse 7: Finnish Insider Case (2002:110; see also 2009:1 TJ Group, set 9a) 8 and 8a: Legal Liabilities

Case 5: Slides (cont.) Slide sets: 11: Disclosure Duties, Insider Information and Business Secrets 12: Information Crimes, Information as Property