Legal Aspects of Finance Slide Set 12 Information Crimes Information as Property More Disclosure Duties Matti Rudanko

Marketing and issuance of securities, duty of disclosure (SMA ch Marketing and issuance of securities, duty of disclosure (SMA ch. 1 sect. 2 – 4) General Principles On securities markets, a procedure that is contrary to good securities market practice is prohibited Securities shall not be marketed or acquired in business by giving false or misleading information Information which is found to have been misleading or false after its presentation and which may be of material importance to an investor shall, without delay, be corrected or supplemented in a sufficient manner. Anyone who offers a security to the public or applies for the admission to public trading or multilateral trading facility of a security or, on the basis of an authorization, handles the issuance of a security or application for the admission to public trading of a security on behalf of another, shall make available for the subscribers on an equal basis sufficient information on factors which may have a material effect on the value of the security. Legal Aspects of Finance 9

Information crime relating to the securities markets The Penal Code, Ch. 51, Section 5 (753/2012) A person who intentionally or through gross negligence (1) in the professional marketing of or trade in securities provides false or misleading information pertaining to a security, or (2) fails to provide appropriate information pertaining to a security, as required by the Securities Markets Act (495/1989), which is conducive to essentially affecting the value of the said security, or when fulfilling the duty of information provided in the Securities Markets Act provides false or misleading information pertaining to the security, shall be sentenced for a security market information offence to a fine or to imprisonment for at most two years. Legal Aspects of Finance 12

Misleading – Telling Lies Game theory and property considerations have given rise to the idea that a lie presented by company management could be acceptable in the securities market (Diss. Sakari Huovinen) if it arises spontaneously during dialogue, if it does not involve the active replacement of old information with new, if it takes place as a defensive measure in order to safeguard the company's interests, if it appIies to matters still at the preparatory stage, and if it is rectified without undue delay. Legal Aspects of Finance 12

Ethical principles of The Finnish Investor Relations Society (FIRS) When interacting with market parties as the IR Officer of a company I will not divulge new information or interpretations that may influence the share price. I will not try to steer analysts' views and forecasts, but I can discuss the underlying assumptions and point out clear errors. If a story obtained through news media's own investigations is about a confidential project, business secret or any other market-sensitive matter, I will try to influence the timing and manner of publication in keeping with the SMA. The leaking of materially important information will immediately set a Stock Exchange communications procedure in motion. Legal Aspects of Finance 12

Information as Property (diss. Sakari Huovinen) From the perspective of property rights, the object of supervision is to determine how well the information is directed to the use that has the greatest value. Every wrong, misleading piece of information that reaches the market generates costs. Correct information, on the other hand, fosters allocative efficiency The principle of information protection: the right to own information and the right to protect it The confidentiality of a company's internaI information is protected by law. The information released by the company, and therefore publicly owned, has the truthfulness requirement (SMA) which protects all parties, not just investors but the public at large. Legal Aspects of Finance 12

Information as Property, cont. The right to keep information secret and the obligation to make information public are two competing judicial values In the securities markets, company information subject to civil law has characteristics of both private and public property simultaneously. Both need legal protection. Legal Aspects of Finance 12

Information Duties of Listed Companies, Overview Regular Duties: Regular Intervals Ongoing Duties: No Regular Intervals Legal Aspects of Finance 12

Information Duties Concerning Trading in Shares Disclosure of Trading in Shares Shareholder duties: Flagging (SMA ch. 9) Duties of Companies Known Changes in Share Portions Triggering Flagging Duties (SMA ch. 9 sect. 10) Application for Listing (SMA ch. 8 sect. 7) Etc. Transactions in the Company’s Own Shares (SMA ch. 8 sect. 2) Legal Aspects of Finance 12

SMA ch. 9 sect. 5 Flagging Duties Ministry of Finance Decision on flagging duties and details to be provided in connection with declaration and disclosure of holdings (154/2007; only in Finnish) FSA Standard 5.2b: Disclosure obligation of the issuer and shareholder The aim of the provisions on the disclosure of major holdings is to ensure transparency in the structure of holdings and power, and changes therein, in listed companies. The disclosed information may also have an impact on the value of the target security. Legal Aspects of Finance 12

Flagging Duties, EU regulation DIRECTIVE 2001/34/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 28 May 2001 on the admission of securities to official stock exchange listing and on information to be published on those securities (codification directive) DIRECTIVE 2004/109/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (transparency directive) Legal Aspects of Finance 12

The Flagging Duty in the SMA A shareholder shall disclose information on his portion (portion of holdings) to the company and the Financial Supervision Authority when the portion reaches or exceeds or falls below 5, 10, 15, 20, 25, 30, 50 or 90 per cent or two-thirds (the threshold) of the voting rights or total number of shares of a Finnish company whose share is admitted to public trade or to corresponding trade within the European Economic Area. Calculation of portion (e.g. holdings of an organisation controlled by the shareholder or holdings which the shareholder alone or under a contract with a third party or otherwise controls) Legal Aspects of Finance 12

Importance of Flagging Act on Book Entry System and Settlement Activity ch. 8 sect. 1: Nominee registration If a book entry has been registered in the custodial nominee account the custodian shall be entered in the list referred to in section 4 above instead of the holder. The custodian may be entered in the list instead of the holder also if the book entry is owned by a foreign person or a foreign organization or foundation. Transparency of holdings (cf. Flagging)? Legal Aspects of Finance 12