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Market misconduct

List of detected cases of the misuse of insider information and market manipulation (market abuse)

Detected cases of market manipulation and illegal use of insider information

2017

On established facts of insider dealing in Sistema PJSFC shares
On establishing facts of securities market manipulation by group of individuals

16th March 2017

The Bank of Russia has established facts of illegal use of insider information by insiders of Sistema Public Joint Stock Financial Corporation (PAO AFK Sistema, further referred to as ‘the Company’), namely, A. N. Buyanov, N. K. Nosova and A. Yu. Goncharuk conducting transactions in ordinary shares of the Company for their own account and on their behalf in July 2014.

Such transactions were found to have been conducted only several hours before the Company formally disclosed its insider information. As a result, the Company shares dropped more than 7% on the Moscow Exchange.

The information obtained in the course of the investigation suggests that the above individuals gained access to the Company’s insider information. The way the instructions to effect transactions were submitted, along with the trading behaviour, provide evidence to the fact that these individuals were conducting transactions in the shares of Sistema PJSFC for their own account using illegally the insider information they obtained.

These transactions enabled the above individuals to avoid material loss amounting to a total of tens of millions rubles.

The use of insider information with a view to conducting transactions in financial instruments is in breach of requirements set forth in Article 6 of Federal Law No. 224-FZ, dated 27 July 2010, ‘On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation’.

The Bank of Russia has submitted the materials related to the investigation to the law enforcement authorities of the Russian Federation.

2016

On establishing facts of securities market manipulation by group of individuals
On establishing facts of securities market manipulation by group of individuals

25th August 2016

The Bank of Russia has detected the fact of market manipulation involving 37 securities on ZAO MICEX Stock Exchange (MICEX SE, CJSC) during the period from January 1, 2014 till August 25, 2015 by a group of individuals comprising Natalya N.Kornilova, Pavel M.Govorov, Mariya V.Smirnova, Andrey N.Kornilov whose actions were aimed at generating high excess income.

In the course of inspection the Bank of Russia has established that Andrey N.Kornilov, being an authorized employee at PAO BALTINVESTBANK credit institution, conducted, on its behalf, transactions in collusion with Natalya N.Kornilova, Pavel M.Govorov and Mariya V.Smirnova. As a result of these transactions, Natalya N.Kornilova, Pavel M.Govorov and Mariya V.Smirnova recorded a positive financial result by inflicting similar damage on the commercial bank. Such actions in most cases caused substantial deviations in the corresponding securities trading parameters. The inspection also detected multiple interconnections between Natalya N.Kornilova, Pavel M.Govorov, Mariya V.Smirnova and Andrey N Kornilov.

Transactions were carried out according to the following scheme. An individual (Natalya N.Kornilova, Pavel M.Govorov or Mariya V.Smirnova) opened a position by purchase or unsecured sale of securities and shortly afterwards submitted an order to close such position at a favourable price. Then Andrey N.Kornilov, acting on behalf of the credit institution, initiated trades in the same securities in the direction coinciding with the individual’s opening position. As a consequence, the securities’ price changed substantially, thus, increasing the individual’s financial result of the position size, and the position was closed at a profit. A position was closed, on average, 1-2 minutes after its opening. Natalya N.Kornilova, Pavel M.Govorov, Mariya V.Smirnova did not conduct any transactions under a different scheme during the period under consideration.

Pursuant to Article 5, Part 1, Paragraph 2 of Federal Law No. 224-FZ of 27 July 2010 ‘On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation’, colluded actions performed from January 1, 2014 through August 25, 2015 by Andrey N.Kornilov on behalf of the credit institution, as well as by Natalya N.Kornilova, Pavel M.Govorov and Mariya V.Smirnova, which resulted in substantial deviations in securities trading parameters, are qualified as market manipulation.

Individuals involved in market manipulation are held administratively liable by the Bank of Russia. The Bank of Russia has also revoked financial market qualification certificates issued to Andrey N.Kornilov.

In a separate series of such transactions which includes opening of a position by an individual and closing it out with a commercial organization involved, an individual recorded a financial result qualified as insignificant on a commercial scale. However, the aggregate income generated over the period in question as a result of securities market manipulation by a group of individuals, i.e. over 700 series of such transactions conducted within a long period of time, is classified as high in accordance with the Criminal Code of the Russian Federation.

The Bank of Russia will submit the inspection results to law enforcement authorities.

On establishing facts of market manipulation involving ordinary shares of PAO Uralskaya kuznitsa (Urals Stampings Plant PAO), PAO Chernogorneft (Public Joint Stock Company Cernogorneft; PJSC Chernogorneft), PAO Kovrovsky mekhanichesky zavod (Public Joint Stock Company “Kovrov Mechanical Plant”; PJSC “KMP”), PAO Saratovsky neftepererabatyvayushchy zavod (Public Joint Stock Company Saratov Oil Refinery; PJSC Saratov Oil Refinery), PAO Novorossiisky morskoy torgovy port (Public Joint Stock Company “Novorossiysk Commercial Sea Port; PJSC “NCSP”) and preferred shares of PAO Rossiiskiye seti (Public Joint Stock Company “ROSSETI”; PJSC “Rosseti”)
On establishing facts of market manipulation involving ordinary shares of PAO Uralskaya kuznitsa (Urals Stampings Plant PAO), PAO Chernogorneft (Public Joint Stock Company Cernogorneft; PJSC Chernogorneft), PAO Kovrovsky mekhanichesky zavod (Public Joint Stock Company “Kovrov Mechanical Plant”; PJSC “KMP”), PAO Saratovsky neftepererabatyvayushchy zavod (Public Joint Stock Company Saratov Oil Refinery; PJSC Saratov Oil Refinery), PAO Novorossiisky morskoy torgovy port (Public Joint Stock Company “Novorossiysk Commercial Sea Port; PJSC “NCSP”) and preferred shares of PAO Rossiiskiye seti (Public Joint Stock Company “ROSSETI”; PJSC “Rosseti”)

29th July 2016

The Bank of Russia has detected the fact of multiple market manipulation on ZAO MICEX Stock Exchange (MICEX SE, CJSC) involving ordinary shares of Urals Stampings Plant PAO, PJSC Chernogorneft, PJSC “KMP”), PJSC Saratov Oil Refinery, PJSC “NCSP” and preferred shares of PJSC “Rosseti” (hereinafter jointly refereed to as the Shares) performed during the period from May 27, 2015 to September 2, 2015 (hereinafter the Period) by related persons: Yuri A. Zhilyayev and Alexander I. Zhilyayev.

An investigation conducted by the Bank of Russia has established that over the Period Yuri A.Zhilyayev conducted a series of transactions in collusion with Alexander I. Zhilyayev that led to substantial deviations in supply and demand, prices as well as trading volume of the Shares.

Trading in a number of Shares markets over the Period is irregular, the proportion of transactions conducted in collusion between Yuri A. Zhilyayev and Alexander I. Zhilyayev in the total trading volume of the above-mentioned instruments accounted for 82% to 100% on a number of days over the Period. Thus, on these days Yuri A. Zhilyayev and Alexander I. Zhilyayev fully controlled pricing of the above-mentioned shares.

Pursuant to Article 5, Part 1, Section 2 of Federal law No. 224-FZ of 27 July 2010 ‘On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation’ (hereinafter the Federal law), in the case under review, the undertaken activities can be qualified as manipulation in the Shares market. That said, Yuri A. Zhilyayev and Alexander I. Zhilyayev violated the prohibition set forth under Article 6, Part 2 of the Federal law.

The indicated individuals have been held administratively liable.

On establishing facts of market manipulation involving preferred shares of PAO Chelyabenergosbyt (Public Joint Stock Company Chelyabenergosbyt)
On establishing facts of market manipulation involving preferred shares of PAO Chelyabenergosbyt (Public Joint Stock Company Chelyabenergosbyt)

8th July 2016

The Bank of Russia has established the fact of market manipulation involving preferred shares of PAO Chelyabenergosbyt (hereinafter the Shares) on ZAO MICEX Stock Exchange (MICEX SE, CJSC) in September and October 2013.

The nature and mechanism of transactions conducted in the Shares on ZAO MICEX Stock Exchange over the indicated period suggest collusive trading between the counterparties. Counterbids of the two individuals when trading the Shares often had identical quantitative and price terms with a minimum time lag between the bids. The financial result analysis of the said transactions did not reveal any economic efficiency.

The investigation established a number of factors pointing at the interconnection between the following individuals – F.N.Smolkin and A.Yu.Chizhenkov including the issued letters of attorney and over-the-counter transactions. The said information implies that the cross trading with the Shares between F.N.Smolkin and A.Yu.Chizhenkov was conducted in collusion.

Pursuant to Article 5, Part 1, Section 2 of Federal law No. 224-FZ of 27 July 2010 ‘On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation’, in the case under review, the colluded actions undertaken by F.N.Smolkin and A.Yu.Chizhenkov that led to substantial deviations in demand, supply, price and volume of the Shares are qualified as market manipulation.

The Bank of Russia has taken action against the persons involved in the Shares market manipulation in order to prevent similar violations in the future.

On detecting facts of market manipulation of the open joint-stock company Sofrinskiy Experimental Mechanical Plant (OAO SEMZ) ordinary shares
On detecting facts of market manipulation of the open joint-stock company Sofrinskiy Experimental Mechanical Plant (OAO SEMZ) ordinary shares

22nd June 2016

The Bank of Russia has established the fact of continuously repeated market manipulation of the open joint-stock company Sofrinskiy Experimental Mechanical Plant (SEMZ, OJSC; OAO SEMZ) ordinary shares (hereinafter the Shares) by interconnected entities with a view to misleading a wide range of investors as regards price and liquidity of the Shares on ZAO MICEX SE (MICEX Stock Exchange, CJSC) from the end of 2011 to 2013.

During the said period, the trading activity of the Share market was maintained by the issuer itself, which is Decom limited liability company (Decom LLC; OOO Decom), a range of foreign legal entities, which are BLUBBERSTAR LIMITED, SKAVADOS ENTERPRISES LIMITED, Transcube Communications GmbH, Vionmane LTD, as well as natural persons - Skubak V.M. and Karmanov I.G. The Share trades between the entities mentioned above comprised more than 70% of the Share trading volume during the period indicated above and repeatedly amounted to 100% of the daily Share trading volume.

The investigation was conducted by the Bank of Russia with the kindest assistance of foreign financial market regulators: Cyprus Securities and Exchange Commission (CySEC) and Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin).

According to the result of the investigation conducted by the Bank of Russia, it has been established that the Share trades between BLUBBERSTAR LIMITED, SKAVADOS ENTERPRISES LIMITED, Transcube Communications GmbH, OAO SEMZ (SEMZ, OJSC), OOO Decom (Decom LLC) as well as between Skubak V.M., Karmanov I.G. and Vionmane LTD were conducted in collusion. The said trades resulted in substantial deviation in the price, volume, demand and supply of the Shares. Pursuant to Article 5, Section 1.2 of Federal law No. 224-FZ of 27 July 2010 “On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation” (hereinafter Federal Law No. 224-FZ) these activities are qualified as market manipulation.

It should be noted that the Share trades between Skubak V.M., Karmanov I.G. and Vionmane LTD had the status of market making trades, and they were acknowledged by the exchange as the trades conducted while discharging obligations of a professional securities market participant under the relevant agreement. Along with that, exemption set forth in Article 5, Section 3.1 of Federal Law No. 224-FZ does not cover actions taken by Skubak V.M., Karmanov I.G. and Vionmane LTD. The said entities being the clients of professional securities market participants were not one of the parties of the agreement on discharging market making functions, and their actions could not be aimed at maintenance of the Share price within the frames of the agreement concerned.

OAO SEMZ (SEMZ, OJSC), OOO Decom (Decom LLC), SKAVADOS ENTERPRISES LIMITED, BLUBBERSTAR LIMITED subsequently placed buy orders at the highest price when conducting trades in the Shares, inter alia, with other securities market participants, thereby enabling Share price increase. The said trades were aimed at misleading other participants as regards the Share price, which resulted in its substantial deviation. Pursuant to Article 5, Section 1.6 of Federal law No. 224-FZ, the said actions are qualified as market manipulation.

The said manipulation resulted in framing artificial level of demand, supply, price and trading volume of the Shares.

The Bank of Russia has taken relevant measures regarding the entities involved in the Share market manipulation aimed at refraining from any further violations similar to those indicated herein.

On detecting facts of market manipulation of investment units of real estate closed investment unit fund Avex Real Estate (real estate ZPIF Avex Real Estate) managed by INTERCOMMERZ Asset Management on ZAO MICEX SE (MICEX Stock Exchange, CJSC)
On detecting facts of market manipulation of investment units of real estate closed investment unit fund Rodnie Prostory (real estate ZPIF Rodnie Prostory) and obligations of Rotor, LLC (OOO «OOO Rotor), Zhilstroy, STP, LLC (OOO STP)
On detecting facts of market manipulation of investment units of real estate closed investment unit fund Rodnie Prostory (real estate ZPIF Rodnie Prostory) and obligations of Rotor, LLC (OOO «OOO Rotor), Zhilstroy, STP, LLC (OOO STP)

17th March 2016

The Bank of Russia has established the fact of market manipulation of investment units of real estate closed investment unit fund Rodnie Prostory (real estate ZPIF Rodnie Prostory; hereinafter the Fund, the Investment Units) managed by management company AK BARS CAPITAL, LLC (OOO UK AK BARS CAPITAL) and bonds of Rotor, LLC (OOO Rotor, 4-03-36052-R), Zhilstroy LLC (OOO Zhilstroy,) 4-02-36238-R), STP, LLC (OOO STP, 4-01-28061-R) (hereinafter together the Bonds) on ZAO MICEX SE (MICEX Stock Exchange, CJSC; hereinafter the Stock Exchange) during the period from January 2013 to April 2015. The trades were conducted by the following entities: Rotor, LLC (OOO Rotor), Zhilstroy LLC (OOO Zhilstroy), AVK, LLC (OOO AVK), Permtransmekhanizatsiya, LLC (OOO Permtransmechanizatsiya), TSK-1, LLC (OOO TSK-1), Rentek, LLC (OOO Rentek), Promaktiv, PJSC (PAO Promaktiv ), as well as by Romanova P.V. and Ivanov N.A.

During the course of the investigation, it was established that all the said entities including non-state pension fund Strategiya, JSC (AO NPF Strategiya) were interconnected and comprised the same group of legal entities, the Strategiya Group under control of several natural persons, final owners of the shares of the mentioned companies. The natural persons that took part in trading the Investment Units and the Bonds hold different positions in the Strategiya Group and are family- or professionally-related.

The character and mechanism of placing the orders to conduct trades in the Investment Units and the Shares on the Stock Exchange (often identical level of price and trading volume), the same trading participants, promoting the gradual increase in price of the Investment Units and the Bonds (the most evident tendency was observed in the end of the financial year 2013, 2014) indicate that the said entities acted in collusion.

The established interconnections of the said entities show that market manipulation of the Investment Units and the Bonds was particularly aimed to artificially increase the value of the assets being on the balance sheet of the AO NPF Strategiya and to enable to assume false prosperous activity and the profitability of the fund. The said actions were taken by the NPF Strategiya for the purpose of misleading investors and the regulator in relation to the price and liquidity of the Investment Units and the Bonds, thus achieving required reserves with the help of the management companies allocating pension funds and investing pension savings of NPF Strategiya into the Investment Units and the Bonds.

Pursuant to Article 5, Section 1.2 and 1.6 of Federal law No. 224-FZ of 27 July 2010 “On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation” (hereinafter the Federal Law), collusive actions taken by Rotor, LLC (OOO Rotor), Zhilstroy LLC (OOO Zhilstroy), AVK, LLC (OOO AVK), TSK-1, LLC (OOO TSK-1 ), Permtrasmekhanizatsiya, LLC (OOO Permtransmechanizatsiya), Rentek, LLC (OOO Rentek), Promaktiv, PJSC (PAO Promaktiv), and by Romanova P.V. and Ivanov N.A. resulted in substantial deviation of the Investment Unit price, demand and supply as well as the Bond price, are qualified as market manipulation.

The relevant measures regarding the entities involved in market manipulation of the Investment Units and the Bonds have been taken including those in compliance with the requirements of the Administrative Code of the Russian Federation.

The Strategiya Group comprises, inter alia, management company Fraktal, LLC (OOO UK Fraktal) and management company Magistral, LLC (OOO UK Magistral) both managing pension funds and pension savings of AO NPF Strategiya. The actions of the management companies were not always caused by risk-oriented approach in choosing the trading strategy and investment items along with respecting genuine interests of the investors and participants of AO NPF Strategiya. Often the transactions were carried out without any economic expediency.

It appears that the said management companies acted mainly for the account and on behalf of the Strategiya Group and its beneficiaries while performing trust management of its funds.

On establishing the fact of market manipulation of units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya
On establishing the fact of market manipulation of units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya

11th February 2016

The Bank of Russia has established the facts of continued and repeated manipulation of units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya traded on MICEX Stock Exchange CJSC in 2013-2014.

During the said period trading activities in the market of units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya were fully based on trades conducted in collusion by the following interconnected entities: Investment Company DC Capital LLC and UNIVER Capital LLC. During this period these entities conducted more than 70% of the trades in the units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya.

Univer Capital LLC and IC DC Capital LLC conducted repeatedly nonstandard trades for their account in the units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya, while placing alternate orders to buy and sell units with a short time lag and their volume and prices coincided, which proves that the said entities acted in collusion. These trades were conducted to maintain the market value of the units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya and create the illusion of activities in the unit market. The said units were used by a limited number of entities, in particular, by financial institutions, in order to intentionally misrepresent financial statements.

It should be noted that, while conducting the above trades, UNIVER Capital LLC acted as a market-maker in the unit market, thus, its activities are covered by the provisions of Article 5 Section 3.3 of Federal Law No. 224-FZ dated July 24, 2010, ‘On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation’ (hereinafter referred to as ‘the Federal Law’).

However, pursuant to Article 5 Section 2.1 of the Federal Law, activities performed by IC DC Capital LLC during the said period which were aimed at conducting trades in the units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya and resulted in substantial deviation in the price and/or volume of trades in the units may be qualified as market manipulation.

Market manipulation is a flagrant violation of the Russian Federation legislation.

The Bank of Russia has made a decision to revoke the license of a securities market professional participant in dealer activity issued to IC DC Capital LLC.

Financial market qualification certificates issued to IC DC Capital LLC officials involved as securities market professional participants in trades qualified as market manipulation of units of Closed-End Rental Unit Investment Fund Zemli Podmoskovya have been revoked.

2015

On establishing facts of OJSC Lenenergo equity market manipulation
On establishing facts of OJSC Lenenergo equity market manipulation

17th December 2015

The Bank of Russia established facts of repeated and lengthy manipulation of the markets of ordinary and preference shares of OJSC Lenenergo (hereinafter, the Equity) at the trading of CJSC MICEX SE from September 2013 till June 2015.

The Bank of Russia’s inspection revealed that during this period CJSC IC Energocapital made a series of transactions by prior arrangement with its customer ONPER TRADING LIMITED. CJSC IC Energocapital used the customer’s trading account in its interests, which resulted in considerable deviations in the volumes of Equity trading, as well as demand and supply.

During this period, ONPER TRADING LIMITED and CJSC IC Energocapital systematically made a series of transactions within a short time span, which made a considerable share of daily Equity trading volume. These entities made bids simultaneously or within the seconds span. With rare exception, such deals resulted in the unchanged daily net-position of ONPER TRADING LIMITED in both equity and monetary terms. CJSC IC Energocapital and ONPER TRADING LIMITED were the key counterparties in the Equity market.

The inspection revealed that ONPER TRADING LIMITED and CJSC IC Energocapital with rare exception made deals in the Equity markets through offsetting orders placed by an authorised representative of CJSC IC Energocapital. In exceptional cases such offsetting orders were placed by two employees of CJSC IC Energocapital. These employees of CJSC IC Energocapital had the powers of attorney authorising them, among other things, to make any securities transactions on behalf of ONPER TRADING LIMITED without its prior agreement.

CJSC IC Energocapital had financial interest in achieving certain volume of trading in the OJSC Lenenergo equity markets, notably receiving a fee from its customer Energocapital-Consult LLC, the agent of the Equity issuer, under the relevant agreement in compliance with which one of parameters envisaged by the agreement was the achievement of certain monthly turnover in each OJSC Lenenergo equity market.

During the period under review, CJSC IC Energocapital was a market maker in the Equity markets. At the same time, CJSC IC Energocapital made equity transactions where ONPER TRADING LIMITED was a counterparty, on the basis of bids placed not within the contractual obligations of CJSC IC Energocapital as a market maker stipulated by the agreement with the Exchange.

Transactions between ONPER TRADING LIMITED and CJSC IC Energocapital made by the employees of CJSC IC Energocapital which resulted in considerable deviations in Equity trading volumes and supply and demand are considered as market manipulation in compliance with Clauses 2 and 4 of Part 1 of Article 5 of Federal Law No. 224-FZ, dated 27 July 2010, ‘On Countering the Misuse of Insider Information and Market Manipulation and Amending Certain Laws of the Russian Federation’.

Thereby, the employees of CJSC IC Energocapital manipulated OJSC Lenenergo equity markets in the interests of CJSC IC Energocapital using the trading account of its customer ONPER TRADING LIMITED who had authorised CJSC IC Energocapital and its employees to make securities transactions on its behalf.

Market manipulation is a gross violation of the Russian legislation and a violation of professional conduct of financial market participants.

The Bank of Russia cancelled licences of professional securities market participant issued to CJSC IC Energocapital.

Administrative measures will be considered with regard to CJSC IC Energocapital and its officials involved in transactions made by the professional securities market participant, which resulted in Equity market manipulation.

The relevant inspection materials will be submitted to the law enforcement bodies.

On establishing fact of investment unit market abuse
On establishing fact of investment unit market abuse

10th December 2015

The Bank of Russia established a fact of repeated and continuous abuse of the market of investment units of Rozhdestvensky, closed-end real estate unit investment fund (real estate CUIF), during the trading on CJSC MICEX SE in 2012-2014.

The trading activity in the market of investment units of Rozhdestvensky, real estate CUIF, during the period under consideration was fully maintained by deals made under prior agreement between the following interconnected entities: IC Talan LLC, Deal-tag LLC, Dmitry Solntsev, Romix LLC, Thayctel LTD, Technostroy LLC and CJSC Energoinvest.

IC Talan LLC, Dmitry Solntsev, Deal-tag LLC, Technostroy LLC, CJSC Energoinvest and Romix LLC made deals aimed at increasing the market value of investment units of Rozhdestvensky, real estate CUIF. As the investment unit reached its maximum value during the trading, Technostroy LLC and CJSC Energoinvest purchased the investment unit of Rozhdestvensky, real estate CUIF, from Thayctel LTD, a non-resident company registered in the Republic of Cyprus. Afterwards, IC Talan LLC, Dmitry Solntsev, Deal-tag LLC, Technostroy LLC, CJSC Energoinvest and Romix LLC made deals aimed at bringing the market price of the investment unit down. As the market price of the investment unit of Rozhdestvensky, real estate CUIF, fell to the level of the imputed value of the investment unit, Thayctel LTD made reverse transactions to purchase investment units from Technostroy LLC, CJSC Energoinvest and other trading participants.

Thereby, deals with investment units were repeatedly made during the trading on CJSC MICEX SE as a result of which Thayctel LTD systematically gained income, while Technostroy LLC, CJSC Energoinvest, Romix LLC and IC Talan LLC suffered losses, and the actions of IC Talan LLC, CJSC Energoinvest, Technostroy LLC, Deal-tag LLC, Romix LLC and Thayctel LTD in the market of investment units of Rozhdestvensky, real estate CUIF, were aimed at creating favourable and appropriate conditions for systematic transfer of funds into a foreign jurisdiction.

Deals with investment units of Rozhdestvensky, real estate CUIF, made by the said persons during the period under consideration resulted in considerable deviation in price and/or trading volume of these investment units, and considered to be market abuse pursuant to Clause 2 of Part 1 of Article 5 of Federal Law No. 224-FZ ‘On Countering the Misuse of Insider Information and Market Manipulation and Amending Certain Laws of the Russian Federation and the Related Regulations’.

Market abuse is a gross violation of the Russian legislation.

The Bank of Russia decided to cancel the licence of professional securities market participant to carry out dealer activity of IC Talan LLC.

Bank of Russia cancelled qualification certificates of financial market specialists of the officials of IC Talan LLC involved in deals made by professional securities market participants which resulted in the abuse of market of Rozhdestvensky, real estate CUIF.

The Bank of Russia sent the persons who had manipulated the market of Rozhdestvensky, real estate CUIF, instructions on non-admission of similar violations in future.

On establishing the fact of market manipulation with units of closed-end unit investment hedge fund Altair and closed-end unit investment hedge fund Iskona
On establishing the fact of market manipulation with units of closed-end unit investment hedge fund Altair and closed-end unit investment hedge fund Iskona

4th December 2015

The Bank of Russia has established the facts of continued and repeated manipulation with the market for investment units of the closed-end unit investment hedge fund Altair and the closed-end unit investment hedge fund Iskona managed by AMC GPI, limited liability company (hereinafter, the Funds), at auctions held by MICEX Stock Exchange, closed joint-stock company, in 2011 to 2013.

Trading activities in the markets of the aforementioned units were maintained through pre-agreed transactions by a group of interconnected entities: HFL Finance LLC, Eco-Engineering LLC, JSCB FINPROMBANK PJSC, Palreco Ltd, and UM Finance Ltd, also having links with issuers of bonds, which had made up the Funds’ property, i.e., Ecolive Ltd and Yorkland Holdings Ltd, and with the persons who had invested these bonds in the Funds’ property.

The volume of pre-agreed transactions between these entities amounted to over 95% of total trades in units of the closed-end unit investment hedge fund Altair and 82% of total trades in units of the closed-end unit investment hedge fund Iskona in the period under review.

Pursuant to Clause 2 of Part 1 of Article 5 of Federal Law No. 224-FZ, dated 24 July 2010, ‘On Countering the Misuse of Insider Information and Market Manipulation and Amending Certain Laws of the Russian Federation’, the transactions conducted by the aforementioned entities in the period under review with units of the hedge funds Altair and Iskona, which caused substantial deviations in prices and/or trade volumes of the said units, may be qualified as market manipulation.

The Bank of Russia has established that JSCB FINPROMBANK PJSC made long-term investments in the Funds’ units and over a long period of time kept their records at a value based on the results of transactions with the Funds’ units at auctions held by MICEX Stock Exchange CJSC, without making loss provisions.

The facts revealed and the procedure for and the quality of assessing the Funds’ property indicate that the latter were set up in the interests of beneficiaries from the scheme of establishing unit markets not related to investing in Ecolive Ltd and Yorkland Holdings Ltd.

Market manipulation is a flagrant violation of the Russian Federation legislation.

Persons involved in the transactions by HFL Finance LLC and UM Finance Ltd, which resulted in market manipulation with the Funds’ units, had their qualification certificates of financial market specialists cancelled.

The Bank of Russia also forwarded to persons involved in market manipulation instructions to prevent similar violations in the future.

On establishing fact of investment unit market abuse
On establishing fact of investment unit market abuse

13th August 2015

The Bank of Russia established a fact of repeated and continuous abuse of the markets of investment units of Centre, closed-end rent unit investment fund (rent CUIF), and Malakhit, rent CUIF, during the trading on CJSC MICEX SE in 2012-2014, and the market of investment units of Strazhi Urala, real estate CUIF, during the trading on CJSC MICEX SE in 2012-2013.

The trading activity in the markets of investment units of Centre, rent CUIF, and Malakhit, rent CUIF, during the period under consideration was fully maintained by the following interconnected entities: CB Koltso Urala LLC, Regional AVK LLC, REA Delovoy Dom LLC, Solutions and Investments LLC and CJSC Uralleasing, also connected with the management company of the said funds MC Sodruzhestvo LLC. They bargained by prior agreement.

Pursuant to Clause 2 of Part 1 of Article 5 of Federal Law No. 224-FZ, dated 24 July 2010, ‘On Counteracting Illegitimate Use of Insider Information and Market Abuse and Amending Certain Laws of the Russian Federation’ (hereinafter, Federal Law No. 224-FZ), deals executed by the said entities with investment units of Centre, rent CUIF, and Malakhit, rent CUIF, during the period under consideration which resulted in considerable deviation of price and/or volume of trading of these investment units are considered to be market abuse.

Besides, some deals with investment units of Centre, rent CUIF, and Malakhit, rent CUIF, repeatedly made by the said entities on certain trading days of the period under consideration which resulted in considerable deviation in price of these investment units, are considered to be market abuse pursuant to Clause 6 of Part 1 of Article 5 of Federal Law No. 224-FZ.

The trading activity in the market of investment units of Strazhi Urala, real estate CUIF, during the period under consideration was fully maintained by the following interconnected participants: CB Koltso Urala LLC, CJSC Management Company United Investment Funds, UGMK-Strakhovanie, and Oleg Pelikh, also connected with the management company of the said funds MC Sodruzhestvo LLC. They bargained by prior agreement.

Some deals with investment units of Strazhi Urala, real estate CUIF made by CB Koltso Urala LLC, CJSC Management Company United Investment Funds, UGMK-Strakhovanie, and O.A. Pelikh during the period under consideration resulted in considerable deviation in price of these investment units, and considered to be market abuse pursuant to Clause 2 of Part 1 of Article 5 of Federal Law No. 224-FZ.

Market abuse is a gross violation of the Russian legislation.

It should be noted, that Centre, rent CUIF, and Malakhit, rent CUIF, terminated their activity shortly after the MC Sodruzhestvo LLC received Bank of Russia instructions to provide documents regarding trust management of these funds.

The Bank of Russia took a decision to cancel licence to carry out professional activity in the securities market of CJSC Management Company United Investment Funds.

Bank of Russia cancelled qualification certificates of financial market specialists of the officials involved in deals made by professional securities market participants which resulted in the abuse of markets of the said investment units.

Administrative measures were applied to some officials involved in the abuse of markets of the said investment units.

The Bank of Russia sent the persons who had manipulated the markets of the said investment units, instructions on non-admission of similar violations in future.

On establishing facts of market manipulation regarding shares of Rosneft JSC, OJSC Rostelecom, JSC RusHydro, Sberbank, Surgutneftegaz OJSC, Tatneft JSC, ОАО LUKOIL
On establishing facts of market manipulation regarding shares of Rosneft JSC, OJSC Rostelecom, JSC RusHydro, Sberbank, Surgutneftegaz OJSC, Tatneft JSC, ОАО LUKOIL

29th April 2015

The Bank of Russia has established facts of market manipulation with regard to ordinary shares of Rosneft JSC, ordinary and preference shares of OJSC Rostelecom, ordinary shares of JSC RusHydro, ordinary and preference shares of Sberbank, ordinary shares of Surgutneftegaz OJSC, ordinary shares of Tatneft JSC, ordinary shares of ОАО LUKOIL (hereinafter referred to as ‘Shares’) during the trading sessions on the Moscow Stock Exchange over the period from 1 February, 2012 to 1 October, 2013 by the following entities: Ursa Capital LLC, Transportny LLC, INRESBANK LLC in its own interests and by the clients of INRESBANK LLC – JSCB MOSOBLBANK OJSC, RIK LLC, RSD LLC, Finance Business Bank LLC and also by a client of another professional player Shepelev Evgeniy Lvovich.

During the course of examination were established facts that the above mentioned entities acted in collusion concluding deals with the Shares, which resulted in sufficient deviation of the trades volume and Shares demand and supply.

During some days the share of the agreed deals between Ursa Capital LLC, Transportny LLC, INRESBANK LLC, JSCB MOSOBLBANK OJSC, RIK LLC, RSD LLC, Finance Business Bank LLC comprised 20-67% in the volume of the Shares trading. Thus, manipulation resulted in creating artificial levels of the demand and supply of the Shares and the volume of the Share trades.

Pursuant to Article 5, Section 1.2 of Federal Law No. 224-FZ dated 27 July, 2010 ‘On Countering the Illegitimate Use of Insider Information and Market Manipulation (Market Abuse) and on Amendments to Certain Legislative Acts of the Russian Federation’ activities undertaken by Ursa Capital LLC, Transportny LLC, INRESBANK LLC, JSCB MOSOBLBANK OJSC, RIK LLC, RSD LLC, Finance Business Bank LLC, Shepelev Evgeniy Lvovivh acting in collusion, which resulted in sufficient deviation of the trades volume and the Shares demand and supply, are qualified as market manipulation (market abuse). The above activities are a flagrant violation of the laws applicable in the Russian Federation.

It should be noted that market manipulation of the Shares had been arranged by INRESBANK LLC, JSCB MOSOBLBANK OJSC and Finance Business Bank LLC in a period before the Bank of Russia took its decision about their financial recovery. Former majority shareholders of INRESBANK LLC, JSCB MOSOBLBANK OJSC and Finance Business Bank LLC were removed from being owners or managers of these organisations. In light of the above mentioned, the Bank of Russia will not apply administrative measures regarding the said credit institutions. Still the Bank of Russia cancelled qualification certificates of securities market specialists of the employees involved in the market manipulation. Such employees were dismissed from the posts they had taken in the stated credit institutions.

Licences authorizing professional activity in the securities market of other legal entities, involved in market manipulation with the Shares, were cancelled.

The Bank of Russia has also forwarded an order notifying the entities involved in the Shares market manipulation that they should avert similar violations in the future.

On establishing facts of Mechel OAO common stock market manipulation
On establishing facts of Mechel OAO common stock market manipulation

9th July 2015

The Bank of Russia established facts of repeated market manipulation with regard to trades in Mechel OAO common stock on the Moscow Exchange.

In the course of its examination the Bank of Russia found out that on 13 November 2013 and 28 February 2014 Mechel OAO common stock prices significantly dropped during the trading sessions on the Moscow Exchange as a result of concurrent large calls for sale. On 13 November 2013, several traders offered more than 14.5 million shares for sale, and on 28 February, the offer exceeded 18.5 million shares, making 59% and 43% of the total stock trade on the indicated dates respectively.

Non-standard offers for stock sale were initiated by 8 Russian professional players, and also by 10 foreign brokers (investment companies trading at their customers’ instructions). Meanwhile, due to interaction with foreign counterparts and due to information provided by the Cyprus Securities and Exchange Commission, the Bank of Russia learned that all the non-standard offers were made in the interest of one entity, i.e. UFS Investments Ltd with the involvement of UFS CAPITAL LIMITED, a foreign broker company.

Over the same period of time, UFS Investments Ltd and UFS CAPITAL LIMITED sold depositary receipts on the common stock of Mechel OAO on the New York Stock Exchange (NYSE).

Acting on behalf of UFS Investments Ltd, UFS CAPITAL LIMITED struck deals to sell shares on the basis of offers with the lowest selling prices, after which during subsequent trading days reverse deals were made on behalf of UFS Investments Ltd.

It was also established that on 14 November 2013, UFS Investments Ltd made deals with shares during the trading session on the Moscow Exchange, and that the obligations of the parties to these deals were performed on account and for one and the same entity — UFS Investments Ltd.

According to Clauses 3 and 5 of Part 1 of Article 5 of Federal Law No. 224-FZ, dated 27 July 2010, ‘On Countering the Illegitimate Use of Insider Information and Market Manipulation and on Amending Certain Laws of the Russian Federation’ activities conducted by UFS Investments Ltd and UFS CAPITAL LIMITED are qualified as stock market manipulation.

The facts of stock market manipulation became possible because of improper discharge by the foreign depository (custodian) UFS CAPITAL LIMITED of its obligation to safekeep shares belonging to its legitimate owner. UFS CAPITAL LIMITED disposed of the shares at its discretion, namely, without obtaining required instructions this company posted shares belonging to their legitimate owner to the custodian account of UFS Investments Ltd. After this, the shares were sold at organised trades.

The stock market manipulation was conducted with the involvement of a Russian professional securities market participant — IC Arbat Finance (the former name of the company was IC UFS Finance), which set up a confusing scheme for the accounting of stock rights. Market manipulation is a gross violation of the Russian legislation requirements, and also a breach of financial market participants’ professional ethics. Besides, IC Arbat Finance created obstacles to examinations, and submitted contradictory and misleading information to the Bank of Russia.

In the period from 25 September 2009 to 25 June 2015, the sole executive body of IC Arbat Finance was Elena V. Zheleznova, which is also the sole founder and managing director of UFS CAPITAL LIMITED, and a beneficial owner of UFS Investments Ltd, UFS CAPITAL LIMITED and IC Arbat Finance. The actions of E.V. Zheleznova directly led to stock market manipulation by UFS CAPITAL LIMITED and UFS Investments Ltd. Besides, on many occasions E.V. Zheleznova did not provide information requested by the Bank of Russia.

As a result of repeated and gross violations of the legislative requirments on countering the illegitimate use of insider information and market manipulation, and also Russian securities legislation, the Bank of Russia decided to cancel the qualification certificate of financial market specialist issued to E.V. Zheleznova and to cancel the licences of a professional securities market participant issued to IC Arbat Finance.

The Bank of Russia passed over information on the violations of the Russian laws and, possibly, of the laws of the Republic of Cyprus commited by UFS Investments Ltd and UFS CAPITAL LIMITED to the Cyprus Securities and Exchange Commission. The licences of the investment company UFS CAPITAL LIMITED had been canceled earlier by the said commission.

The Bank of Russia submitted information on actions constituting the stock market manipulation and bearing the evidence of criminal offence to the Investigative Committee of the Russian Federation for consideration and procedural decision making.

On establishing the fact of market manipulation with investment units of the closed-end real estate unit investment fund Montes Auri Mountain (ZPIFN Montes Auri Mountain)

19th February 2015

The Bank of Russia has established the fact of continued and repeated manipulation with the market for investment units of ZPIFN Montes Auri Mountain (closed-end real estate unit investment fund Montes Auri Mountain) during the period from July 2011 to June 2014.

The market for investment units of ZPIFN Montes Auri Mountain was almost completely created artificially by a group of interconnected individuals, also having indirect links with OOO UK Montes Auri (Montes Auri LLC), the asset manager of ZPIFN Montes Auri Mountain. The vast majority of trades in investment units were executed on the ZAO MICEX SE (closed joint stock company MICEX Stock Exchange) by Denis Alekseevich Bredikhin, Dmitry Andreevich Yakovenko, Aleksander Sergeevich Pristupnitskiy, Sergey Vladimirovich Vikharev and Rinat Rimovich Battalov acting in collusion. The above persons were sustaining trading activities on the market for investment units and their quotations, while in some cases cross trades comprised up to 100% of the daily trading volume in investment units of ZPIFN Montes Auri Mountain.

The way bids were submitted for executing trades in investment units, the systematic nature of trades, the limited number of trading market participants, the apparent connection between counterparties, lack of economic rationale behind the trades for some of them indicate that the trades were executed by counterparties acting in collusion, and liquidity, as well as prices, trading volumes, demand for investment units and their supply were artificially maintained.

These activities were presumably undertaken with a view to misleading a large part of the investor community as regards the price and liquidity of the investment units of ZPIFN Montes Auri Mountain.

Pursuant to Article 5, Section 1.2 of Federal law No. 224-FZ of July 27, 2010 “On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation”, the activities undertaken by D. A. Bredikhin, D. A. Yakovenko, S. V. Vikharev and R. R. Battalov acting in collusion, which resulted in substantial movements in the prices, supply and demand for investment units, may be qualified as market manipulation (market abuse). The above activities may be referred to as a flagrant violation of the laws applicable in the Russian Federation.

In accordance with Article 14, Section 1.5 of Federal law No. 224-FZ of July 27, 2010 “On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation”, the Bank of Russia has issued an order to D. A. Bredikhin, D. A. Yakovenko, S. V. Vikharev and R. R. Battalov to refrain from such activity in the future.

The Bank of Russia is currently considering other enforcement measures to be imposed on individuals involved in market manipulation (market abuse).

2014

On establishing the fact of market manipulations with investment units of the closed-end credit unit investment fund Rossiyskiy Kreditny Soyuz, ZPIFC RKS (Russian Credit Union)

12th November 2014

The Bank of Russia has established the fact of continued and repeated manipulation of the market for investment units of the closed-end credit unit investment fund Rossiyskiy Kreditny Soyuz, ZPIFC RKS (Russian Credit Union) during the period from November 2011 to September 2013.

The market for investment units of ZPIFC RKS was almost completely created artificially by a group of interconnected legal entities and individuals, also having links with OOO MFOND (MFOND LLC), the asset manager of ZPIFC RKS. The vast majority of trades in investment units of ZPIFC RKS were executed on the ZAO MICEX SE (MICEX Stock Exchange, CJSC) by OAO MEZHTOPENERGOCOM Investment Company (Interregional Fuel & Energy Investment Company, OJSC), ZAO Kompaniya Portphelnykh Investitsiy (Portfolio Investment Company, CJSC), OAO Bank Narodny Credit (People’s Credit Bank, OJSC), and R. M. Mironov acting in collusion. The above entities were sustaining trading activities on the market for investment units of ZPIFC RKS and their quotations by executing collusive trades. In most cases, cross trades effected by the above entities during the trading period comprised up to 100% of the daily trading volume in investment units of ZPIFC RKS.

That said, it should be noted that on certain days, when executing trades, OAO MEZHTOPENERGOCOM Investment Company was both a party to the trades acting on its own behalf and a trading participant acting on behalf and for the account of its clients, ZAO Kompaniya Portphelnykh Investitsiy and OAO Bank Narodny Credit, in accordance with the brokerage agreements concluded with them.

In view of the interconnectedness among OAO MEZHTOPENERGOCOM Investment Company, ZAO Kompaniya Portphelnykh Investitsiy and OAO Bank Narodny Credit through a group of legal entities and private individuals, and in respect of the lack of trades in investment units of ZPIFC RKS executed by other entities/individuals on the MICEX Stock Exchange on such days, it has been established that OAO MEZHTOPENERGOCOM Investment Company was acting on behalf of its clients, ZAO Kompaniya Portphelnykh Investitsiy and OAO Bank Narodny Credit by prior arrangement.

Pursuant to Article 5, Section 1.2 of Federal law No. 224-FZ of July 27, 2010 “On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation”, the activities undertaken by OAO MEZHTOPENERGOCOM Investment Company, ZAO Kompaniya Portphelnykh Investitsiy, OAO Bank Narodny Credit and R. M. Mironov acting in collusion, which resulted in substantial movements in the prices and trading volume of investment units, may be qualified as market manipulation (market abuse).

Market abuse shall be construed as a flagrant violation of the laws applicable in the Russian Federation, in breach of the code of professional conduct for financial market participants.

The Bank of Russia has taken the decision to revoke the license authorizing professional activity in the securities market held by legal entities, professional securities market participants, manipulating the market for investment units of ZPIFC RKS.

Furthermore, certificates of qualification in financial markets held by the officials involved in the trades executed by professional securities market participants, which resulted in the manipulation of the market for investment units of ZPIFC RKS, have been cancelled.

On establishing the fact of insider trading with OPIN, JSC, shares

10th July 2014

Being in informational exchange with foreign regulating authorities, in February 2012 the Bank of Russia established facts of misuse of insider information of Otkritiye investicii LtD (Opin LtD) and ONEXIM HOLDINGS LIMITED.

In February 2012 ONEXIM HOLDINGS LIMITED decided to prepare a mandatory offer of ordinary personal uncertificated shares purchase issued by Opin, JSC. Before the information was provided to Federal Financial Market Service of the Russian Federation in March 2012, it had a status of insider information both for Opin LtD and for ONEXIM HOLDINGS LIMITED.

Inspections conducted by the Bank of Russia revealed the fact of delivering the insider information about the planned offer to ARDELICA LTD by S.S. Gorskiy, who at that time was ONEXIM HOLDINGS LIMITED representative. In such a way S.S. Gorskiy violated item 2 part 1 article 5 of the Federal Law № 224-FZ dated 27th July 2010 “On counteracting the Illegitimate Use of Insider Information and Market Manipulation and on Amendments to Certain Laws of the Russian Federation” (hereafter Law 224-FZ).

Using the insider information, ARDELICA LTD purchased in February 2012 Opin, JSC, shares in Moscow Exchange trades. The shares were stored up by FOESTA LIMITED, which interests were also represented by S.S. Gorskiy. The final beneficiary of the manipulations was ONEXIM HOLDINGS LIMITED. By conducting such manipulations, ARDELICA LTD, FOESTA LIMITED and ONEXIM HOLDINGS LIMITED violated item 1 part 1 article 6 of Law 224-FZ.

The transactions were likely aimed at profiting by ONEXIM HOLDINGS LIMITED from purchase of Opin, JSC, shares before its shareholders received the mandatory offer of a price without acquisition premium.

According to item 5 part 1 article 14 of Law 224-FZ the Bank of Russia sent improvement notices concerning prevention of such offences in future to ONEXIM HOLDINGS LIMITED, ARDELICA LTD, FOESTA LIMITED and to S.S. Gorskiy.

According to item 1 part 1 article 15 of Law 224-FZ, receiving of such improvement notices is subject to obligate disclosure.

We call your attention, that insider trading foresees criminal responsibility since August 2013. That’s why the Bank of Russia has no ground for sending inspections results to law-enforcement authorities for beginning a criminal investigation. Still, the facts described in this informational message, established by fulfilling the supervisory activities by the Bank of Russia and represented in the instructions, can be used for assessing business reputation of individuals and legal entities mentioned above.

On establishing the fact of market manipulations with investment units Agrokapital, ZPIF

23th June 2014

The Bank of Russia established facts of multiple and enduring manipulations with investment units issued by closed-end investment rent income fund Agrokapital trading in Moscow exchange in 2012 and 2013.

Inspections revised, that market for investment units Agrokapital, ZPIF was almost completely simulated. Prices of the investment units on Moscow exchange trades, like other trade characteristics (volume, supply and demand) were formed in non-market ways and intentionally supported by concerned individuals and legal entities related to each other. Being customers of the same financial market professional participant, the individuals and legal entities accomplished the greatest part of transactions with the investment units.

Exceptions with Agrokapital investment units were accomplished by individuals and legal entities, connected to the fund management company Euro Trust - a securities market professional participant - and a number of other individuals and legal entities.

Manipulations with Agrokapital investment units were aimed at misinformation of a wide range of investors and the financial market regulator about price and liquidity of the investment units.

Market manipulations are a crude violation of Russian legislation and a violation of professional honor of financial market participants. The Bank of Russia cancelled qualification certificates of securities market specialists from individuals operating in companies, which were securities market professional participants and were involved in manipulations, namely Ivanov A.A., Kuprina E.G., Shachurina V.V. and Davidov A.V.

Individuals, who took part in manipulations, will be held administratively liable.

On establishing the fact of market manipulations

28th May 2014

The Bank of Russia established facts of multiple manipulations with ordinary shares issued by Joint Stock Company UK ORF and investment units issued by Interval mutual investment fund of mixed investments “Third reserve fund” trading in Moscow exchange in 2011 and 2012.

Inspections revised, that trades with shares and investment units of the companies were almost completely simulated. 96,78% of trade volume of ORF, JSC, shares was accomplished with Fineko, LLC, and its customers – individuals and legal entities, related to each other, by the issuer, the management company of “Third reserve fund” and by the securities market professional participant itself. 99,71% of trade volume of “Third reserve fund” investment units was accomplished with Fineko, LLC, and its customers.

The trading authority Fineko, LLC, conducted an agreement with the companies mentioned above on market-making services for their shares and investment units. According to the agreement, Fineko, LLC, and its 32 customers submitted bids for the shares and investment units. Russian legislation on the prevention of misuse of insider information and market manipulations doesn’t regard actions aimed at price, demand, supply and trade volume support conducted according to agreements with trading authority as market manipulations.

In this very case, transactions with ORF, JSC, shares and “Third reserve fund” investment units concluded with Fineko, LLC, acting in own best interests and for its customers benefit, amounted to 90.8% (ORF, JSC) and 99,6% (“Third reserve fund”).

Manipulations with shares and investment units were accomplished by Fineko, LLC, customers – Russian and foreign individuals and legal entities. Individuals took different positions in ORF, JSC, which was a managing company of the “Third reserve fund” and in Fineko, LLC, a securities market professional participant, which contributed to the manipulations. The companies controlled legal entities manipulating on the financial instruments market.

Hence, prices for financial instruments were formed on Moscow exchange trades in non-market ways, as well as other trade characteristics (volume, supply and demand) and supported by concerned parties related to each other. The Bank of Russia believes, that JSC UK ORF share prices and “Third reserve fund” investment units prices developed in the open market (official rates) are not fair and do not represent the true value of the financial instruments.

Market manipulations are a crude violation of Russian legislation. The Bank of Russia revoked license for securities market professional participant for broker activity from Fineko, LLC, and cancelled qualification certificates of securities market specialists by Yuminov O.V., Orlov I.V. and Yakovlev A.S., who took positions of Director General in JSC UK ORF, Director General in LLC Fineko and compliance officer in LLC Fineko.

On establishing the fact of market manipulations with Transneft, JSC, shares

27th February 2014

Inspections conducted by the Bank of Russia’s Financial Market Service established facts of market manipulations accomplished with registered preference shares issued by Joint Stock Company “Oil Transportation Joint-Stock Corporation “Transneft” on the Moscow Exchange trades in period from December 2012 till March 2013.

URSA capital, LLC, acting in own best interests and Inresbank, LLC, acting for the benefit of its customer – legal entity – accomplished a number of mutual transactions on preliminary agreement with Transneft, JSC, shares in period from December 2012 till March 2013. By trading in anonymous trade regime a party submitted bids for a transaction, its counterparty simultaneously submitted an opposite bid for an identical volume and price. Accomplishment of the transactions in negotiated deal mode was followed by a submission of address orders closing reversed purchase and sale transactions between the same parties and for the same amount. On some days the transactions were conducted at first in negotiated deal mode, following with reversed deals accomplished in the general trade mode. The described manipulations resulted in substantial shares price and trade volume deviations.

URSA capital, LLC, Inresbank, LLC and its customers accomplished a number of transactions in trading with preference shares of Transneft, JSC, in period from December 2012 till March 2013, regarded as market manipulations according to item 2 part 1 article 5 of the Federal Law № 224-FZ dated 27th July 2010 “On counteracting the Illegitimate Use of Insider Information and Market Manipulation and on Amendments to Certain Laws of the Russian Federation”.

Specialists in securities market qualifications certificates were revoked by officials, who had passed resolutions of bid submission for transactions resulting in market manipulations with preference shares of Transneft, JSC, and officials, who hadn’t carefully fulfill compliance duties, which led to crude violations of regulations of the Russian Federation by securities market participants.

On establishing the fact of market manipulations

27th February 2014

Based on the inspections results conducted by the Bank of Russia’s Financial Market Service a fact of ordinary shares market manipulations was established, which had taken place in Moscow Exchange trades from December 2012 till April 2013. Manipulations were committed by Republic investment company, LLC, Republic financial corporation, JSC, and Inresbank, LLC.

The transactions, accomplished from December 2012 till April 2013 committed on stock exchange trades by Republic investment company, LLC, Republic financial corporation, JSC, - customers of Inresbank, LLC – can be classified on their mechanism as transactions on preliminary agreement and are seen as market manipulations according to Federal Law № 224-FZ dated 27th July 2010 “On counteracting the Illegitimate Use of Insider Information and Market Manipulation and on Amendments to Certain Laws of the Russian Federation”.

According to item 2 part 1 article 5 of this Federal Law, market manipulations are defined as accomplishment of transactions with financial instruments, foreign exchange and (or) a commodity on preliminary agreement between trades participants and (or) their officers and (or) individuals and legal entities at the expense of which and for the benefit of which transactions are carried out, resulting in price, supply, demand and trade volume deviations of the financial instrument, foreign exchange and (or) a commodity form the level, that would remain without the transactions.

Functioning as securities market professional participants and manipulating the shares market legal entities lost their license for securities market professional participant activities.

Qualifications of specialists in securities market were revoked by officials, who accepted decisions of bid submission for transactions resulting in market manipulations and officials, who didn’t carefully fulfill compliance duties, which led to crude violations of regulations of the Russian Federation by securities market participants.

2013

On establishing the fact of market manipulations with Varyeganneftegaz, JSC, shares

27th December 2013

The Bank of Russia’s Financial Market Service revealed manipulations with the Varyeganneftegaz, JSC, shares in Moscow Exchange trades in the period from March 2012 till September 2013.

The basis for inspections was a proclamation made by a securities market professional participant about accomplishing by its customers transactions bearing marks of market manipulations. The integrated system of financial market monitoring also revealed a number of odd transactions with Varyeganneftegaz, JSC, ordinary shares, accomplished by the same customers of the securities market professional participant.

The inspections revealed, that three individuals, which were customers of the same market professional participant and had blood relationship to each other, accomplished a number of repeating transactions, that occupied a great market share in trading with Varyeganneftegaz, JSC, ordinary shares. On some trading days such transactions amounted to 100% of the daily trade volume with the shares. The described transactions resulted in price and other market variables deviations of Varyeganneftegaz, JSC ordinary shares.

The inspections established, that the actions were committed by one and the same individual for his own benefit, using accounts opened for other individuals.

The individual, who accomplished manipulations with Varyeganneftegaz, JSC, ordinary shares, will be held administratively liable.

On establishing the fact of market manipulations with War and peace Media Group, JSC, shares

13th November 2013

The Bank of Russia’s Financial Market Service established the fact of repeated manipulating the market of the shares issued by War and Peace Media Group, JSC, at the Moscow Exchange trades in 2012.

Manipulating was accomplished by founders and by company officials.

The market of the War and Peace Media Group, JSC, shares was manipulated through intentional dissemination of false information and through transactions with its shares agreed before by participants benefiting from them. As a result of the manipulations market variables deviated from the level, that would remain without the transactions. Besides, during trading days in Moscow Exchange, multiple transactions for the benefit of one and the same individual based on bids with highest purchase price and lowest selling price were accomplished, resulting in price deviation from the level, that would be formed without such bids. The manipulations were aimed at benefiting from reverse transactions carried out by deviated prices.

Transactions describes above were carried out in great volume, had no economic purpose and were only aimed at imitating high demand for War and Peace Media Group, JSC, shares, in order to sell them to general public and increase trades activity.

Besides, the company official individual violated the Federal Law “On the prevention of misuse of insider information and market manipulations, with amendments to concerning legislative acts of the Russian Federation” in the items concerning the delivery of notices about transactions accomplished with the company’s shares.

The concerned War and Peace Media Group, JSC, official individual will be held administratively liable by the Bank of Russia’s Financial Market Service.

Inspections results will be sent to law-enforcement authorities for beginning a criminal investigation due to the fact, that involved individuals gained profit in an especially large amount. The Bank of Russia’s Financial Market Service will provide assistance to law-enforcement authorities in investigating the manipulations.

To prevent similar manipulations in future by the offenders, they were forbidden to accomplish any transactions with trading authorities including any operations with derivatives.

In addition, the Bank of Russia’s Financial Market Service sent to Moscow Exchange a letter on necessary measures to be taken for precautions and preventions of manipulations with War and Peace Media Group, JSC.

On establishing the fact of market manipulations with Bogorodskie delikatesy, JSC, shares

September 10, 2013

The Bank of Russia’s Financial Market Service established the fact of manipulating Bogorodskie delikatesy, OJSC, shares at the Moscow Exchange trades in December 2012.

The inspection revealed activities with the Bogorodskie delikatesy, OJSC, shares taken by a number of legal entities and classified as market manipulation in accordance with the Federal law “On countering the illegal use of inside information and market manipulation and on amending certain legislative acts of the Russian Federation”. Such activities were submitting bids for the Bogorodskie delikatesy, OJSC, shares transactions that led to their decline from the level that would have formed without their submitting. The overwhelming majority of Bogorodskie delikatesy, OJSC, shares transactions at Moscow Exchange trades were made by entities carrying out manipulation.

Among the legal entities carrying out manipulation there was an organization that, at the moment when the indicated activities were made, was a professional participant of the securities market. By the time the inspection was finished the mentioned organization’s license of a professional securities market participant had been revoked. The Bogorodskie delikatesy, OJSC, shares were a part of the company’s financial investments, the buy-sell transactions of these stocks aimed at sitting and fixing a market price of the shares, among all for giving the appearance that the company’s own funds respond to the standards of the own funds sufficiency established by the Russian legislation on securities.

Individuals who carried out manipulations of the Bogorodskie delikatesy, OJSC, shares market will be called to administrative account by the Financial Markets Service of the Bank of Russia.

On establishing the fact of insider trading with KALINA, JSC, shares

July 1, 2013. 21:09. Author: Dmitry Pankin

In autumn 2011 many market participants, mass media and business representatives noted a rapid growth of KALINA shares prior to the purchase of the controlling block of KALINA shares by Unilever represented by Unilever Rus, LLC. In that period I was often asked about a possible misuse of inside information about the purchase of KALINA shares. That was the time, when FFMS of Russia started investigations of that fact.

We requested a huge number of documents, the FFMS of Russia received and analyzed information on more than 300 individuals and about 50 entities that participated in preparation of the deal of the KALINA controlling shares block buyout by the Unilever company together with the Unilever Rus, LLC. During the inspection it was established that some individuals involved in the deal misused the inside information, that they had at their disposal and bought KALINA shares themselves.

One of those individuals was a KALINA employee who held a chief position. At first he accomplished shares transactions in his own name, then – via discretionary accounts in other individuals’ name.

Besides, the inside information was illegally used by the legal entity registered in foreign jurisdiction that carried out transactions of KALINA shares buying in the over-the-counter market.

The volume of transactions carried out by the individuals mentioned above exceeds a few hundred million rubles.

This is the first proved case of illegal use of inside information in the Russian market.

In the near future we will send all available materials to the law-enforcement authorities.

On establishing the fact of market manipulations with AvtoVAZ, JSC, shares

June 19, 2013

The Federal Financial Markets Service (FFMS) revealed AvtoVAZ OJSC shares manipulations at Moscow Exchange trades in December 2012.

Manipulations were established through inspection of the issuer’s request to the service and of data received from the integrated system of financial market monitoring used by the FFMS of Russia.

Conducted inspections revealed, that manipulations were conducted by spreading false information in mass media by legal entities and individuals. The entities and individuals involved in spreading false information were also found out. Besides, the FFMS of Russia detected false information supposed to be spread in future.

In order to establish manipulations, dozens of requests for information were sent and a great number of document s received was analyzed. The information and documents contained evidences of entities and individuals involvement in manipulations and also evidences of relations between them.

As a result of market manipulations, the AvtoVAZ OJSC shares price changed and the volume of shares trades rose considerably. Furthermore, the inspections detected that as a consequence of the indicated activities a lot of market participants incurred losses.

The individual, who manipulated the AvtoVAZ OJSC shares market, will be held administratively liable by the FFMS of Russia, and the evidences will be sent to law enforcement authorities.

On establishing the fact of market manipulations with M-INDUSTRIA Constructional Association CJSC, bonds

May 30, 2013

The Federal Financial Markets Service (FFMS) established manipulations with the M-INDUSTRIA Constructional Association CJSC bonds market at the Moscow Exchange trades from February till June 2012.

Manipulations were established through inspection of the issuer’s request to the service and of the data received from the integrated system of financial market monitoring used by the FFMS of Russia.

The inspections revealed, that two Russian citizens, related to each other and being customers of the same securities market professional participant, regularly concluded mutual transactions. The individuals mentioned above simultaneously submitted bids and matching bids. On some days the share of such transactions reached 100% of the daily trading volume of the bonds. On some days the bond volatility rose up over 100%. Later on, those bonds were sold to other trading participants by one of the mentioned individuals.

The individuals involved in manipulating the M-INDUSTRIA Constructional Association CJSC bonds market will be held administratively liable.

On establishing the fact of market manipulations with Proektniye Investiciyi, JSC, shares

April 25, 2013

The Federal Financial Markets Service ascertained manipulation with ordinary shares prices of open joint-stock company Proektniye Investiciyi during the trading sessions at the MICEX Stock Exchange from January 2012 to February 2013.

The inspection was triggered by the applications of a number of individuals to the Service. In the course of the inspection the FFMS of Russia also received applications from market participants with information that their clients’ orders bore some signs of manipulation with shares of Proektniye Investiciyi, JSC.

In the course of the inspection it was determined that from January 2012 to February 2013 clients of several professional participants regularly conducted crossing trades. For example, trade volume of transactions conducted by them with shares of Proektniye Investiciyi, JSC, covered a considerable part of daily trade volume, and for several days it amounted almost to 100%. These transactions caused a considerable deviation of shares price.

Broker’s accounts of one Russian individual and two foreign entities were used for the manipulation. The inspection detected the connections between these persons. Besides, it was found out that the manipulative transactions were carried out for the benefit of the issuer, Proektniye Investiciyi, JSC.

The persons responsible for the manipulation with ordinary shares prices of Proektniye Investiciyi, JSC will bear administrative responsibility. The FFMS of Russia will send the materials of inspection to the law enforcement authority.

On establishing the fact of market manipulations with AKB AVANGARD, shares

March 06, 2013

The Federal Financial Markets Service ascertained manipulation with ordinary shares prices of open joint-stock company AKB AVANGARD during the trading sessions at the MICEX Stock Exchange from December 2011 to May 2012.

The manipulation was detected during an inspection organized to check the information about probable manipulation received from the Overall Monitoring System for the financial market. Besides, the Service received an application from a securities market professional participant that his client accomplished transactions bearing signs of market manipulations.

In the course of inspection it was determined that customers of several professional participants regularly conducted crossing trades. For example, for several days trade volume of transactions with AKB AVANGARD, JSC, performed by these participants amounted to 100% of daily trade volume of the shares.

According to the conclusion issued by the Experts Committee on Sustainable Market Deviations under the FFMS of Russia, the mentioned transactions caused a sustainable deviation of price of shares of AKB AVANGARD, JSC, and other market variables.

Further relevant investigations aimed to carefully examine the circumstances under which the transactions were conducted by the mentioned persons revealed that these actions were actually committed on behalf and at the expense of one individual, i.e., they were actually crossing trades.

The person responsible for the manipulation with ordinary shares prices of AKB AVANGARD, JSC, will bear administrative responsibility. Besides, it will be considered the possibility of sending the materials on this violation to the law enforcement authority.

On establishing the fact of market manipulations with Archangelskaya Sbytovaya Companiya, shares

February 22, 2013 at 15:03 Written by Dmitry Pankin

The Federal Financial Markets Service ascertained another episode of manipulation. This time ordinary and preference shares of Archangelskaya Sbytovaya Companiya were manipulated during trading sessions at the MICEX Stock Exchange.

We received information about an episode of possible manipulation from a professional participant. The results of trading session were analyzed and it was discovered that the maximum trade volume of ordinary and preference shares was reached on December 16, 2011, and it amounted to 1,266,347 and 2,064,122 rubles according to shares categories.

We also found out that 90% of daily trade volume of ordinary shares and 96,53% of daily trade volume of preference shares were accomplished by two participants (individuals). The transactions were economically inefficient, as they were accomplished at the same price and earned no profit. No-address bids for the transactions were submitted simultaneously with identical volume and prices. And in the majority of cases the time gap between bids was less than 5 seconds.

The information received by the Service during the inspection was examined by the Experts Committee on Sustainable Market Deviations under the FFMS of Russia. The Committee members acknowledged that the accomplished transactions caused a sustainable deviation of market variables of the issuer’s securities, in particular it concerned daily trade volume.

Besides, we disclosed that individuals who accomplished the transactions are members of the Board of Directors of BaikalInvestBank, JSC, and members of the Supervisory Board of the Enisey Bank Public Company, and they occupy managerial positions in Ortiga Group, LLC. Based on this information, we come to the conclusion that their actions were committed intendedly and in collusion.

This incident is the first episode of manipulation with non-marketable securities reported by the Service under the Law on Inside Information.

2012

On establishing the fact of market manipulations with Solikamsk Magnesium Plant, JSC, shares

November 29, 2012

The Federal Financial Markets Service ascertained the manipulation with ordinary shares prices of open joint-stock company Solikamsk Magnesium Plant during trading sessions at the MICEX Stock Exchange in March 2012.

Having received several requests from individuals and entities, the FFMS of Russia carried out an inspection from March to November of that year to check the provided information.

In the course of the inspection the FFMS of Russia revealed that a copycat website http://см3.рф/ appeared in the Internet, and its spelling and wording resembled http://смз.рф/, the website of SMP, JSC. Besides, the copycat website was visually identical to SMP website. The copycat website contained misleading information on repurchase of SMP shares at the price much higher than the market price registered on the MICEX Stock Exchange. It caused a considerable variance of price and other market shares variables which is regarded as market manipulation according to Paragraph 1 Part 1 Article 5 of Federal Law No. 224-ФЗ On Counteraction on Illegal Use of Insider Information and Market Manipulation and on Amendments to Certain Legislative Acts of the Russian Federation dated 27.07.2010.

The person responsible for the manipulation will bear administrative responsibility. Besides, the FFMS of Russia will send the materials it possessed to the law enforcement authority.

On establishing the fact of market manipulations with RBC, shares

September 20, 2012

The Federal Financial Markets Service ascertained manipulation with ordinary shares prices of open joint-stock company RBC during trading sessions at the MICEX Stock Exchange in the autumn of 2011.

The manipulation was detected during the inspection organized after a request of RBC, JSC, the issuer of the shares.

The inspection revealed several transactions with a considerable variance of price and other market variables. Some transactions were performed by trading session participants within a standard investment or speculative strategy. Nevertheless, it was noticed that during several days in November 2011 some transactions accomplished by a group of clients of one of securities market professional participants were interconnected. The mentioned transactions caused a considerable variance of price and other market variables, and for several days the volume of transactions with RBC shares amounted to 40% of daily trade volume of the shares.

The inspection revealed that the transactions were accomplished for the benefit of one individual who also participated in the trading session. The mentioned person will bear appropriate administrative responsibility, and inspection results will be sent to law enforcement authority.

2011

On establishing the fact of price manipulation with TATBENTO, JSC, shares

August 10, 2011

The Federal Financial Markets Service ascertained price manipulation with ordinary shares of open joint-stock company TATBENTO during trading sessions at the MICEX Stock Exchange.

The manipulation with bond prices was detected during the inspection organized after the request of a trading session participant and it was also discovered by the Overall Monitoring System for the financial market of the FFMS of Russia.

The manipulation was performed from September to December 2010 by several persons, clients of the above mentioned trading sessions participant, one of whom, a citizen of Russia, is the founder of TATBENTO, JSC. Prices on ordinary shares of TATBENTO, JSC, increased by more than 150% within the mentioned period

The persons responsible for the manipulation with bond prices will bear appropriate administrative responsibility. The FFMS will disclose the information on the mentioned person after the imposition of administrative sanctions.

The FFMS of Russia will send inspection results to the law enforcement authority.

On establishing the fact of price manipulation with Samaraenergo, JSC, shares

June 30, 2011

The Federal Financial Markets Service ascertained price manipulation with ordinary shares of open joint-stock company Samaraenergo during trading sessions of the RTS Stock Exchange.

The manipulation with bond prices was detected during the inspection which was organized following the request of a trading session participant, one of the largest Russian investment companies.

The manipulation was effected by a client of this company, a citizen of the Russian Federation, in December 2010 during the validity of the provisions of Federal Law No. 39-ФЗ On Securities Market dated 22.04.1996 which are now canceled due to the adoption of Federal Law No. 224-ФЗ On Counteraction on Illegal Use of Insider Information and Market Manipulation and on Amendments to Certain Legislative Acts of the Russian Federation dated 27.07.2010. Within three days when the transactions were carried out, ordinary shares price of the open joint-stock company Samaraenergo increased by more than 100% due to the manipulation.

The person responsible for the manipulation with bond prices will bear appropriate administrative responsibility. The FFMS will disclose the information on the mentioned person after the imposition of administrative sanctions.

The FFMS of Russia will send inspection results to the law enforcement authority.

On establishing the fact of securities price manipulation

May 25, 2011

The Federal Financial Markets Service ascertained the manipulation with the prices on a number of securities, i.e., prices on bonds of Citronics, JSC (state registration No. 4-01-50038-A), AKB Investtorgbank, JSC (state registration No. 40402763B), Tatfondbank, JSC (state registration No. 40403058B), Metallservice-Finance, LLC (state registration No. 4-01-36246-R), Setl Group, LLC (state registration No. 4-01-36160-R), Rotor, LLC (state registration No. 4-03-36052-R), Strategia Investment Company, LLC (state registration No. 4-02-36238-R), prices on investment units of closed-end real estate fund Rodnye Prostory managed by Management Company Ermak, CJSC, prices on ordinary shares of Management Company Strategia, JSC, during trading sessions of the MICEX Stock Exchange, CJSC, as well as prices on ordinary shares of Permpromnedvizhimost, JSC, and Promyshlenny Activ, JSC, during trading sessions of RTS, JSC,.

The manipulation with securities prices was detected during the inspection.

The manipulation took place in 2009-2010 during the validity of the provisions of the Federal Law On Securities Market which are now canceled due to the adoption of the Federal Law On Counteraction on Illegal Use of Insider Information and Market Manipulation and On Amendments to Certain Legislative Acts of the Russian Federation.

Persons responsible for the manipulation with securities prices will bear appropriate administrative responsibility. The FFMS will disclose the information on the mentioned persons after the imposition of administrative sanctions.

The inspection materials will be sent to the law enforcement authority.

2010

On establishing the fact of price manipulation with InterTradeInvest, JSC, and FinComInvest, JSC, shares

March 25, 2010

The Federal Financial Markets Service took a decision to acknowledge price manipulation with shares of InterTradeInvest, JSC, and FinComInvest, JSC, performed by the following persons: Profit-Time, LLC (TIN 7701770811), Assole, LLC (TIN 7733680134) and Ajvengo, LLC (TIN 7724605204) within the trading sessions of the closed joint stock company MICEX Stock Exchange.

This decision is taken according to the securities legislation and is based on the results of an inspection carried out by the FFMS of Russia.

In the course of the inspection the Service found out that within the trading day Profit-Time, LLC, carried out numerous transactions with shares of InterTradeInvest, LLC, in the interest of Assole, LLC, as well as transactions with shares of FinComInvest, JSC, in the interest of Ajvengo, LLC, without any economic sense or legal purpose, and the fulfilment of liabilities under which did not change securities’ holders.

It should be noted that the above mentioned actions increased prices and demand on the shares of InterTradeInvest, JSC, and FinComInvest, JSC, as well as their trade volume on the FFMS.

The results of the inspection carried out by the FFMS of Russia will be sent to the law enforcement authority in order to detect criminal crimes.

Due to the acknowledgment of the manipulation with securities prices, the FFMS of Russia revoked the licenses to carry out broker, dealer activities, portfolio management and custody business issued to the securities market professional participant Profit-Time, LLC, as well as qualification certificates of Koguta Sergey Viktorovich, its General Director, and Burenko Oksana Borisovna, a compliance officer.

Profit-Time, LLC, repeatedly violated the securities legislation of the Russian Federation, including federal authority regulations governing the securities market, i.e., Federal Law on the Securities Market, Regulations on Broker and Dealer Activities on the Securities Market of the Russian Federation, Regulation on the Accountability of Securities Market Professional Participants, Capital Adequacy Ratio for securities market professional participants, investment funds management companies, open-end funds and non-governmental pension funds.

On establishing the fact of price manipulation with Biodinamika, JSC, shares

December 28, 2010

The Federal Financial Markets Service took a decision to acknowledge price manipulation with ordinary registered uncertified shares of Biodinamika, JSC, Donskaya Investment Company, JSC, Mezhotraslevaya Strahovaya Companiya, JSC, Polyot, JSC, and FinInvest, JSC.

This decision is taken according to the securities legislation and it is based on the results of the inspection carried out by the FFMS of Russia.

In the course of the inspection the Service found out that from 2008 to 2010 Donskaya Investment Company, JSC, and FinInvest, JSC, manipulated shares prices of Biodinamika, JSC, Donskaya Investment Company, JSC, Mezhotraslevaya Strahovaya Companiya, JSC, Polyot, JSC, and FinInvest, JSC, during trade sessions at the Moscow Stock Exchange and carried out repeated transactions with the above mentioned shares for the benefit of their clients CenterLeasing, JSC, and SK Expertno-Konsultativnoe Strakhovanie, LLC, without any obvious economic sense or legal purpose, and the fulfilment of liabilities under which did not change securities’ holders.

The inspection also found out that from 2008 to 2010 CenterLeasing, JSC, and SK Expertno-Konsultativnoe Strakhovanie, LLC, manipulated shares prices of Biodinamika, JSC, Donskaya Investment Company, JSC, Mezhotraslevaya Strahovaya Companiya, JSC, Polyot, JSC, and FinInvest, JSC, in the course of trade sessions at the Moscow Stock Exchange, as they issued orders to one or simultaneously two trading participants to carry out two or more transactions with the same security, and in the transactions the buyer and the seller acted for the benefit of the client.

As the result of the actions performed by Donskaya Investment Company, JSC, TradeFinance, LLC, Center Leasing, JSC, and SK Expertno-Konsultativnoe Strakhovanie, LLC, the prices on shares of Biodinamika, JSC, Donskaya Investment Company, JSC, Mezhotraslevaya Strahovaya Companiya, JSC, Polyot, JSC, and FinInvest, JSC, were maintained at a fixed level, and their trade volume was increased at the Moscow Stock Exchange, JSC.

Due to the acknowledgment of shares prices manipulation, the FFMS of Russia revoked the licenses to carry out broker, dealer activities, securities management and depository activities issued to securities market professional participant Donskaya Investment Company, JSC.

Earlier, on September 22, 2009, the FFMS of Russia revoked the licenses of the securities market professional participant TradeFinance, LLC, because of committed violations.

At present the Federal Financial Markets Service is going to send the inspection results to the law enforcement authority.

Unfair practices

Conducting transactions for the acquisition of the issuer’s shares through third party companies by using insider information relating to the launch of the mandatory public offer

The corporate shareholder (company) intended to purchase a controlling interest in the issuer’s shares traded on the exchange. As a result of the purchase, the said shareholder was subject to an obligation to make a public offer to the minority shareholders of the issuer. During the preparation of the mandatory offer, the shareholder, having provisionally set its terms and conditions, was purchasing the issuer’s shares on the exchange through its affiliated companies acting on its behalf. After that, the accumulated issuer’s shares were transferred from the custody accounts of the above affiliated companies to the custody accounts of the above corporate shareholder under over-the-counter share purchase agreements in place. That said, the company did not take any formal corporate actions relating to the acquisition of the issuer’s shares and terms and conditions of the mandatory offer during the purchase period.

The activities specified above were undertaken during the period following the corporate action issued by the company regarding the intended acquisition of a controlling interest in the shares and hence the launch of a mandatory offer subject to certain conditions but before the offer was actually forwarded to the regulator and the issuer, and before the disclosure of this information in line with the established procedure. The shares were purchased at a price lower than that being made available in the intended mandatory offer. As soon as the information relating to the launch of the mandatory offer by the corporate shareholder was disclosed to the regulator to give prior notification, the exchange saw an increase in the volume of the issuer’s shares traded, as well as higher prices for the shares. As soon as the information relating to the launch of the public offer, as well as its terms and conditions, were disclosed to the issuer, the issuer’s share price considerably declined reaching the level comparable to the mandatory offer price.

The company, by way of explanation for its actions, stated that it did not consider the information regarding the plans for acquiring a controlling interest in the issuer’s shares, and hence the preparation of the mandatory public offer, as insider information since it had failed to follow the formal corporate procedures for decision-making with regard to the issues specified. Moreover, according to the company, it was not subject to the requirement to maintain an insider list.

These practices are considered unfair by the Bank of Russia, in breach of the insider trading and market manipulation legislation. Failure to comply with any formal provisional rules and procedures established by legislation, binding on companies, as well as failure to adhere to internal corporate policies and procedures does not absolve such a company from liability for future insider trading violations.

The information concerning the person controlling the issuer (directly or indirectly through affiliated persons), as well as about the launch of a voluntary, mandatory or competitive offer for the acquisition of the issuer’s shares is insider information pertaining not only to the issuer but also to other persons having access to such information. That said, the information regarding the launch of a public offer is considered insider information from the moment its preparation starts and all the essential terms and conditions are tentatively set out by the shareholder. For instance, the time the shareholder files an application for a bank guarantee, which is binding in this case, may be considered such a moment. Persons having access to such information, as well as persons having launched the relevant offer are considered insiders.

The corporate shareholder should have implemented all the necessary measures to protect the said insider information and ensure that individuals designated by law having access to insider information are on the insider list. The corporate shareholder and its insiders with regard to the information relating to the launch of the public offer should have refrained from transactions in the issuer’s shares on the exchange under invariably preferential terms and conditions specifically set for them, as compared with the terms and conditions under the mandatory public offer prior to the disclosure of insider information about the launch of the public offer.

The corporate shareholder misused the insider information regarding the launch of the public offer with a view to conducting transactions to acquire the issuer’s shares through third party companies, as well as by passing on the insider information to these companies, which is expressly prohibited by law. The corporate shareholder engaged in illegal and unfair conduct in order to avoid losses stemming from an increase in the issuer’s share prices on the exchange, which may have occurred under the influence of the said information during the acquisition of the shares.

The corporate shareholder’s conduct has infringed the rights and legitimate interests of independent organized market players, i.e. investors that incurred losses due to the lack of information required to make correct, informed investment decisions with regard to the situation under review. The organized market players selling the issuer’s shares that did not have access to the relevant insider information prior to its official disclosure were invariably put at a disadvantage by the corporate shareholder and its related parties during this period given that they were selling the shares at a price lower than that being subsequently made available in the mandatory offer. Therefore, the market conditions for fair value pricing of the issuer’s shares were undermined.

Dissemination of Inaccurate Information Regarding the Intention to Launch a Public Offer for the Acquisition of Shares

The corporate shareholder’s representative disclosed, to the mass media, that as soon as the company purchases a controlling interest in the issuer’s shares, it intends to launch a public offer to the minority shareholders of the issuer for the acquisition of their shares.

The announcement resulted in an increase in the issuer’s share trading volume and a substantial rise in the share quotations on the exchange over an extended period of time. In accordance with the criteria established by the trading organizer (exchange), the deviation in the demand, trading volume and price for the issuer’s shares appeared material. However, the offer was not launched, which was caused by the difficulties faced by the corporate shareholder while trying to raise funds necessary for purchasing the shares under the offer. The corporate shareholder subsequently dismissed the idea of acquiring the issuer’s shares.

Pursuant to Article 5, Section 1.1 of Federal law No. 224-FZ of 27 July 2010 ‘On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation’, in the case under review, the activities undertaken by the corporate shareholder cannot be qualified as market manipulation involving the issuer’s shares since the corporate shareholder did not intentionally disclose any false or deceptive information in its announcement.

However, the above practices are qualified as unfair by the Bank of Russia since they fail to comply with the established code of business conduct and ethics in the financial market and may fringe the rights and legitimate interests of investors, financial market players.

The information disseminated through the announcement made by the corporate shareholder, by its nature and content, under certain conditions shall be qualified as insider information and disclosed in line with the established procedures. To this end, it is necessary to provisionally define and agree on all the material terms and conditions of the intended transaction for the acquisition of the issuer’s shares and obtain confirmation and guarantees most relevant to its execution (for example, with regard to the possibility and willingness to provide the required funding). Otherwise, as it happened in the above-mentioned instance, the information disseminated is inaccurate and untimely, unconfirmed or representing the expectations of someone who provided the information regarding the probability and desirability of certain circumstances.

The announcement made by the corporate shareholder contained information concerning its plans, intentions, expectations and assumptions with regard to acquiring a controlling interest in the issuer’s shares, the launch of a public offer to the minority shareholders of the issuer, receiving the required funding and obtaining a bank guarantee for the acquisition of the issuer’s shares. The information disseminated by the corporate shareholder’s representative was not definite, accurate and precise. Along with that, in the context of the announcement made it was perceived by the financial market participants as final and accurate. The dissemination and supply of such information by any means without relevant reservations are deemed unacceptable by the Bank of Russia from the perspective of fair practices.

The company’s official providing such information should take into account the increased sensitivity of the financial market to the disclosure of the said information, regardless of how accurate it is, and hence accept reasonable responsibility for the possible use of the said information by market participants. The dissemination or supply of such information may be misleading for them and materially affect the price and other parameters of a financial instrument, thereby distorting the market factors behind fair value pricing. The use of such information may inflict losses on investors.

When disseminating such information through the mass media and official sources, it is necessary to specifically emphasize that it is tentative and not final, while highlighting that it may possibly be revised and subsequently altered. Along with that, it is necessary to focus the market on the probability of the said events, among other things, depending on compliance with internal policies and procedures as required by law (for instance, approval of the transaction by relevant management bodies of the company; gaining consent for the transaction from the competition authority; issuing relevant notification). Treatment of such information as insider information and its subsequent gradual disclosure (progressively as the information is revised and altered), in accordance with the established rules and procedures, make it possible to fully and effectively protect the rights of all stakeholders.

If information disseminated in this manner fails to be in line with the real intents, proves inadequate, inaccurate, or incomplete, leaves room for ambiguous or incorrect interpretation by market participants, the relevant source of information shall immediately demand that the information is refuted, revised or amended (specified) in accordance with the established rules and procedures. Such revisions will enable other interested market participants to avoid inherently wrong investment decisions.

The facts of similar unfair practices will be taken into account by the Bank of Russia when assessing the business reputation of the persons involved in the said conduct. More rigorous controls will be imposed on transactions and other activities of the said persons in the financial market.

Effecting a Transaction on the Exchange with the Assistance of the Analytics Division of a Professional Securities Market Participant

The professional securities market participant intends to sell its securities or receives an order from its client, under the brokerage services agreement in place, for the sale of a large block of securities, the liquidity of which is not sufficient enough to ensure that the said order may be executed on the exchange by the desired dates. Attempts to sell such securities on the exchange in small quantities set a downward trend in the price of securities, and hence may result in a substantial decline in profits from any subsequent sales of the block of securities.

In this regard, the professional securities market participant seeks to find, to its own or the client’s benefit, a counterparty to the transaction by means of issuing and disseminating, to a wide range of market participants, an analytical report deliberately containing a positive assessment of securities and highlighting their investment attractiveness. This analytical report may be prepared and issued by the professional securities market participant interested in the transaction (its analytical division) on its own behalf; along with that, it may be commissioned by the said market participant (or its official) and issued by some other person not directly related to him that has no interest in the transaction, inter alia, by some other professional securities market participant on its own behalf. Thereafter, the professional securities market participant effects a transaction to sell the said block of securities for its own account and on its own behalf or on behalf of its client in collusion with the counterparty. Pursuant to Article 5, Section 1.2 of Federal law No. 224-FZ of 27 July 2010 ‘On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation’, collusive trades effected on the exchange resulting in a material deviation of market parameters of trading in securities (price, demand, supply and trading volume) shall be qualified as market manipulation.

In this particular case, the analytical report disseminated to a wide audience has been used by the professional securities market participant as a tool to influence potential buyers with a view to selling a large block of securities.

The above practices, i.e. the issue and dissemination of analytical reports by professional securities market participants with a view to artificially creating a favorable information background for the implementation of investment decisions in the financial market, are deemed unfair by the Bank of Russia, regardless of whether the decisions (transactions and trades) implemented in this manner result in a material deviation in the market parameters of a financial instrument or not. Conducting such collusive trades in the over-the-counter market by making use of deliberately false information, conclusions and recommendations contained in the analytical report is deemed as unfair practices by the Bank of Russia as well. Despite the fact that, to date, such conduct is not directly referred to as market manipulation under the Russian legislation, the given practices appear misleading to market participants and, essentially, represent one of the means to deliberately spread misinformation.

Along with that, according to international practices the above-mentioned series of actions taken by the professional securities market participant is defined as manipulative practices.

The professional securities market participant intended to sell a large block of securities under conditions that could not be secured by the market (lack of adequate demand for securities and hence low price level) and influence the market situation (by means of information resources). The professional securities market participant fulfilled the above intention, having artificially created the requisite situation in the market through stimulating the demand for securities by means of the analytical report with a view to generating profits.

In order to prevent similar unfair practices, it seems appropriate to introduce, among other things, a clear division and segregation of duties assigned to the investment and analytics divisions of professional securities market participants.

The facts of similar unfair practices will be taken into account by the Bank of Russia when assessing the business reputation of the persons involved in the said conduct. Along with that, more rigorous controls will be imposed by the Bank of Russia on transactions and other activities of the said persons in the financial market.

Possible Implications of the Materialization of Liquidity Risk in REPO Transactions

In response to the request submitted by the Issuer, the Bank of Russia has conducted an investigation into alleged market manipulation involving ordinary shares of the Issuer (hereinafter the Shares) traded on ZAO MICEX Stock Exchange (hereinafter the Exchange), which saw their share price decline over a few days by more than 50%.

During the course of the investigation the Bank of Russia established as follows.

The Issuer’s foreign subsidiary (hereinafter the Subsidiary) is a client of a foreign broker (hereinafter the Broker), which is a client of a Russian professional securities market participant, a trading participant on the Exchange. In order to raise the requisite funding, the Subsidiary entered into an over-the-counter REPO transaction in Shares with the Broker (hereinafter the Repo transaction) against the Issuer’s guarantee.

The Subsidiary failed to discharge its obligations to the Broker under the REPO transaction in a timely manner.

In accordance with the terms and conditions of the agreement with the Subsidiary, the Broker started to heavily sell low liquid Shares on the Exchange in the main trading mode, which caused the Share price to plummet.

The conduct of the parties does not constitute a breach of any prohibitions expressly set forth under Federal law No. 224-FZ of 27 July 2010 ‘On combating the misuse of insider information and market manipulation (market abuse) and on amendments to certain legislative acts of the Russian Federation’.

However, given that the conduct of the parties to the REPO transaction artificially caused a substantial change in the price of Shares traded on the Exchange, the Bank of Russia deems it necessary to draw market participants’ attention to the following.

  1. Market participants should carry out a comprehensive risk assessment. Specifically, the volume of the REPO transaction concerned exceeded several hundred times the average daily trading volume of Shares. Such a volume does not allow for a possibility to quickly sell Shares on the Exchange in the main trading mode without materially affecting the price. The possible decline in the Share price was not adequately accounted for in the discount rate agreed on by the parties to the REPO transaction. The Bank of Russia considers that the Broker failed to take a balanced approach to risks. When carrying out a risk assessment, prior to entering into the REPO transaction, the Broker should have performed an analysis of the liquidity and capacity of the Share market.
  2. The Broker having specialist knowledge of financial markets and the requisite infrastructure, prior to the sale of a large block of Shares, ignored the level of liquidity in the market, failed to take into account possible implications of the sale of Shares traded on the Exchange and did not consider any other options of the sale of a block of Shares.
  3. The irresponsible conduct of the Subsidiary and the Broker could have inflicted potential losses on third parties, shareholders of the Issuer.
  4. The Subsidiary is managed by the Issuer's employees. The Issuer was aware that the second leg of the REPO transaction was entered into but failed to be executed in a timely manner by the Subsidiary, and that the Broker intends to sell Shares to pay off the Subsidiary’s debt. However, the Issuer failed to fully implement the appropriate measures to resolve the said conflict situation. In its request the Issuer withheld some facts and circumstances of the case, thereby misinforming the Bank of Russia and putting pressure on the Broker through the Bank of Russia.

The Bank of Russia proposes that market participants should be more responsible and carefully consider possible implications of their conduct. Situations related to the counterparties’ failure to discharge their obligations under over-the-counter transactions shall be resolved within the boundaries of the legal framework and should not materially affect the rights and interests of third parties.