Baker & McKenzie : on Anti-Insider Trading and Market Manipulation

Federal law № 224-FZ dated 27 July 2010 "On Prevention of the Illegitimate Use of Inside Information and Market Manipulation and on Amendments to Certain Laws of the Russian Federation" (hereinafter, the "Law") was published on 30 July 2010 and comes into effect 180 days after publication, except for a few provisions including those regulating liability.

The purpose of the Law is to ensure adequate formation of prices for financial instruments, foreign currency and (or) goods, to give all investors equal opportunities, and to generally boost investor confidence in the Russian market.

The Law has three main areas, namely:

  • sanctions for the use of inside information in transactions;
  • a requirement to set up compliance procedures regarding insiders;
  • sanctions for market manipulation.

Each of them is separately discussed below.

 

1. Inside information

Criminal liability for the unlawful use of inside information would be either fines of up to 500 thousand rubles or imprisonment for up to four years. For the illegal transfer of inside information that liability increases up to one million rubles, or up to six years' imprisonment.

Inside information is defined in the law as precise and specific information that has not been disclosed, the disclosure of which would significantly influence the prices of: (1) financial instruments; (2) foreign currency; and/or (3) goods, if such information has been included in the list of inside information approved by the Federal Service for Financial Markets (the "FSFM"). To date the FSFM has not approved this list.

 

2. Compliance procedures regarding insiders

Organizations holding inside information are obliged to maintain an internal list of inside information and a list of individuals possessing inside information, and communicate such lists to the FSFM at its request.

Among those who must publish lists of inside information on the Internet are:

  • issuers of emission securities and managing companies;
  • entities holding a dominant position in any particular market;
  • exchanges, clearing companies, depositories and credit institutions making settlements in accordance with the results of deals performed on exchanges;
  • professional participants of the securities market;
  • state bodies;
  • the Bank of Russia;
  • information agencies;
  • rating agencies.

Advisors and auditors would be deemed insiders if they have access to inside information of entities listed in clauses 1-4 above; however, they are not obliged to publish lists of inside information on the Internet.

Individual insiders are obliged to notify organizations for which they are insiders, and also the FSFM, about all transactions that they conclude with the securities of these organizations.

 

3. Market manipulation

Market manipulation entails the following liability: damage compensation; administrative fines of up to 50 thousand rubles for officials and no less than 700 thousand rubles for companies; and criminal liability of up to seven years' imprisonment.

The term "market manipulation" can be defined as committing operations resulting in formation or maintenance of a price, demand, offer or volume of trading of financial instruments, foreign currency and/or goods at a level that significantly differs from that under regular market conditions.

Under certain conditions the following actions are considered market manipulation:

  1. deliberate distribution of false information through the mass media;
  2. conducting operations by prior agreement between participants of the securities market and (or) their employees and (or) parties at the expense or in the interest of which such operations are conducted;
  3. settlement of transactions in which the obligations of the parties concerned are discharged at the expense or in the interest of one person;
  4. submission of bids at the expense or in the interest of one person if as a result of such bids there will be two or more counter bids on an organized trade platform; and
  5. performing multiple transactions on an organized trade platform within one trading day at the expense or in the interest of one person for the purpose of misleading other participants about the true prices.

Should you have any questions, please do not hesitate to contact Max Gutbrod, partner at the Baker & McKenzie Moscow Representative Office.

Share/Save