E-5/19 Prosecuting Authority v F and G

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EFTA-case

Deadlines: Motivation departments: 5 August 2019
Written observations: 19 September 2019 (ultimate deadline)

Keywords : Market abuse, transactions, market manipulation

Subject :

- EEA Agreement

- Directive 2003/6/EC on insider dealing and market manipulation (Market Abuse Directive) was adopted on 28 January 2003

- 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

- Commission Directive 2003/125/EC of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards the fair presentation of investment recommendations and the disclosure of conflicts of interest

- Commission Regulation (EC) No 2273/2003 of 22 December 2003 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 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 transaction

 

Facts of the case:

The case at hand is concerned with the verdict whether ther respondents manipulated the bond market on the Oslo Stock Exchange when F as advisor of the Triton Fund sold a bond holding for the Triton fund with a face value of 10 million NOK at a price of 77 on 18.08.2016. This was done through G as bond broker in the investment firm Arcitic Securities. Under Norwegian law it is a criminal offence to engage in market manipulation (implementation of Market Abuse Directive). In Norway, the corporate bond market is recognized as being anonymous, closed, illiquid and not very transparent when compared to the stock market. In casu, there were two trades which together possibly constitute market abuse, being one sale of bonds by F to “test” the market in order to see whether or not the buy offer was real or a “bluff”.

 

Consideration:

In this case, it is disputed whether real transactions are caught by the wording of the prohibition, and whether investors’ real interest in buying and selling is relevant for the question of whether there is market abuse. The interpretation of the market abuse directive is of fundamental importance for the scope of the prohibitions sec and for the European integrated securities market. A request for an expedited procedure is made because the criminal trial will be held from 05.11.2019 until 29.11.2019.

 

Request for an advisory opinion:

1) Is it compatible with the first indent of Article 1(2)(a) of the Market Abuse Directive that transactions that are real, that is to say, transactions that transfer expense and risk with full effect between independent parties, can be caught by the wording ‘give, or are likely to give, false or misleading signals’?

 

2) Is it compatible with the first indent of Article 1(2)(a) of the Market Abuse Directive for a trade order submitted, or a transaction that is executed and reported to the market, with correct price and volume, nevertheless to be held to be market manipulation, if it is deemed to convey a false impression of or misleading signals about the real interest in buying and selling the security in question?

 

3) Is it compatible with the second indent of Article 1(2)(a) of the Market Abuse Directive for the determination of whether a price is at an ‘abnormal’ or ‘artificial’ level to be made on the basis of the individual prerequisites for the investor(s) executing a trade order or transaction, including, for example, their strategy, valuation of the security in question and/or judgment of the market situation (supply and demand) and a general expectation that other investors sell and buy at the best prices consistently with their own real interest in buying and selling and thus, for example, do not sell at a lower price than what they are also willing to pay to buy?

In the determination of whether a price is at an ‘abnormal’ or ‘artificial’ level, is it compatible with the second indent of Article 1(2)(a) of the Market Abuse Directive for it to be assumed that an individual trade order or transaction can be deemed to establish such a level?

To what extent and under which circumstances will a transaction involving a security that is not traded in an auction (mechanism), but that has come into being through direct negotiations between two of several brokerage houses, be capable of securing the price, see the second indent of Article 1(2)(a) MAD?

 

4) Is it compatible with the second indent of Article 1(2)(a) of the Market Abuse Directive to consider as ‘legitimate reason’ for executing a transaction or trade order satisfying the criteria in the first and second indent, that the party who executed the transaction or the trade order wished to:

- uncover other investors’ real interest in buying or selling,

- take advantage of other investors’ uncertainty or lack of information about the real interest in buying and selling on the market, or

- reveal whether there is false information about supply, demand or price in the market.

 

5) Is it compatible with Article 1(2)(c) of the Market Abuse Directive to consider information to be ‘disseminated’ when:

- an investor has given the information to a broker in order for it to be passed on to one or more other investors in the market, or

- the broker actually has passed on the information to one or more other investors in the market,

even though the information has not yet been announced or made publicly available?

 

Policy area: EZK, ACM, FIN