Financial instrument market manipulations revealed
The Bank of Russia revealed multiple manipulations of some financial instrument markets at the trading of PJSC Moscow Exchange (further referred to as the Exchange). Trading with the instruments in question followed similar patterns in different periods.
These facts were revealed in the course of investigations conducted to validate compliance with Federal Law No.
The Bank of Russia investigated the following investment unit markets: Closed-end Equity Unit Investment Fund Finam — Information Technologies and Closed-end Rental Unit Investment Fund Finam — Capital Investment, ordinary share markets of OJSC Levenhuk, PJSC Mediaholding, PJSC TPG AESSEL, OJSC GlavTorgProduct, PJSC Vtorresursy and PJSC Platform UTINET.Ru, and equity markets of foreign issuers United Company RUSAL Plc and Polyus Gold International Limited (further jointly referred to as the Financial Instruments).
Actions taken by some participants of Financial Instrument markets gave the impression of running trading activity and liquidity, inter alia, to attract investors and artificially shape and maintain the prices of the Financial Instruments.
Operations qualified as manipulations of Financial Instrument markets were conducted as agreed upon beforehand by legal entities and/or individuals interconnected with the issuers of the respective Financial Instruments or trading participants. The Bank of Russia registered multiple mutual purchase and sale transactions with Financial Instruments which lacked clear economic sense and were closed on the basis of orders with similar price and volume parameters.
In all the registered cases, entities manipulating the markets included foreign legal entities interconnected with JSC FINAM, and persons who authorised former FINAM employees to make securities transactions. In addition, JSC FINAM acted as a market maker in different periods of Financial Instrument circulation.
Customers of JSC FINAM interconnected with JSC FINAM accounted for a sizeable share of transactions closed in the markets of investment units of Closed-end Equity Unit Investment Fund FINAM — Information Technologies and Closed-end Rental Unit Investment Fund Capital Investment during the trading. At the same time, investment units of the said closed-end unit investment funds were recorded in FINAM Group equity.
Trading in the markets of ordinary shares of PJSC Levenhuk, PJSC Mediaholding and PJSC TPG AESSEL was maintained by entities interconnected with the issuers and/or their listing agents, as well as JSC FINAM.
The activity of OJSC GlavTorgProduct and PJSC Vtorresursy was non-transparent. Some facts suggest that the issuers’ efforts to bring ordinary shares to the stock market and transactions made at the Exchange by the persons interconnected with the issuers, including of managerial level, were of schemes in nature and aimed at implementing complicated financial schemes.
Persons colluding transactions with the ordinary shares of PJSC Platform UTINET.Ru and the shares of foreign issuers United Company RUSAL Plc and Polyus Gold International Limited, were not interconnected with the issuers. That said, JSC FINAM placed market-maker’s bids on its own behalf and for the customers account without exercising due control over these customers’ operations.
Given the above, the Bank of Russia emphasises that engaging third parties by the market maker to maintain bilateral prices of a respective financial instrument does not serve as a legal ground for these persons to fall within the exemption established by Clause 1, Part 3, Article 5 of the Federal Law. Enforcement measures provided for by the law for market manipulation are imposed against these persons on a regular basis.
The engagement by a professional securities market participant of its customers to act as a market maker, which results in artificially creating market for the financial instrument, is reviewed by the Bank of Russia as unfair practice of the professional securities market participant which paves the way for market manipulation and misleading of a wide range of investors in terms of the price of the financial instrument.
The Bank of Russia draws the attention of professional securities market participants acting as market makers, their officials responsible for internal controls aimed at countering unlawful use of insider information and market manipulation, that due control is required over their customers’ compliance with the Federal Law and related regulations.
The Bank of Russia warns customers of professional securities market participants who transfer information to third parties and authorise their access and execution of operations across their broker accounts that the transfer of such powers should be taken with full responsibility taking into account the administrative and criminal responsibility for market manipulation established by Russian law.
The Bank of Russia took relevant measures with respect to the persons engaged in manipulation of the Financial Instrument market, aimed at preventing such violations in the future.
Information on persons engaged in manipulation of Financial Instrument market and the periods of market manipulation is included in the List of revealed cases of unlawful use of insider information and market manipulation.
The Bank of Russia advises that market participants take into account the information letter with regards to engaging of individuals in the activity of trading participants acting as market makers.
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