Feb 26 2008 Michael Tsibris




Law 3340/2005 on "the protection of the capital market from abuse of privileged information and market manipulation" has implemented the Market Abuse Directive (2003/6/EC) in Greece. For the purposes of this law "market abuse" means abuse of privileged information and market manipulation — both aspects are prohibited. The Hellenic Capital Market Commission is the authority that supervises the correct application of the Market Abuse Law, which applies to acts committed in the territory of Greece or that involve financial instruments admitted for trading on an organised market which operates in Greece.

The administrative sanctions for breaches of market abuse prohibitions are described in chapter G of the law (articles 23-25). In particular, the CMC may impose monetary fines. Fines may range from €10,000 to €2m. The upper limit of the fine may be increased (up to triple the original amount) in the case of repeated offences, however. Further fines — up to €500,000 — may be imposed in the case of breaches in respect of the preventive measures imposed by the law, obstruction of the audits which the CMC performs, or provision of false information to the CMC.

The CMC is generally active in enforcing the market abuse legislation and does not fail to perform audits in the event of situations that may involve market abuse in any of its forms. Since the first important market manipulation and insider trading case in 1997 the CMC has brought forward more than 50 cases of market abuse. All of those cases involved the imposition of monetary fines, while some even had a criminal aspect.

Case study

The most recent important market abuse case is that of Ipirotiki Software and Publications, an ATHEX-listed software and publishing company. CMC staff audited the transactions on the shares of Ipirotiki (hereinafter "the company") performed during the period from October 2, 2004 up to April 2, 2005, the last day the share was traded prior to its placement under suspension of trading on April 4, 2005 (following the suicide of its managing director, who was also the principal shareholder).

As the CMC reported, during the audited period, the share price of the company remained relatively stable, featuring a slight increase (3.74 per cent), whereas the ATHEX index rose by 18.93 per cent and the sectoral IT companies index by 22.40 per cent. The average daily volume of transactions on this stock was particularly high, however, registering a 80.06 per cent increase as compared to its average daily volume for the immediately preceding period. The largest volume of transactions executed (69.97 per cent of the total volume of transactions on the share, excluding block trades) were performed by 47 individuals and legal entities (the "investors involved") that exhibited a common investing pattern and were found to be connected, in their majority, with the main shareholder and managing director, as well as with the company itself.

The audit revealed that the transactions which the involved investors performed showed indications of price manipulation, namely that the same involved investors executed cyclical transactions, usually within the three-day settlement period, that the transactions performed among the involved investors accounted for a large percentage of the total volume of transactions on this stock (48.36 per cent of the total volume of transactions on the stock, excluding block trades). The involved investors also performed systematic purchases and sales during the sensitive period when the closing price of the stock is determined, usually via the same connected broker companies. Two individuals connected with the company and other involved investors were also found to give orders for the execution of transactions on behalf of other involved investors.

Broker participation

It was ascertained that three brokerage firms were mainly involved and that:

• The transactions on the stock that the involved investors made through these brokerages represented the largest portion of the transactions they executed on the stock as intermediaries.
• These specific top brokerage firms were systematically executing transactions on the stock, on behalf of the involved investors.
• The share of the company was the main investment which the involved investors made through these specific brokerages.
• They were the most important counterparties in the execution of transactions on the share on behalf of the involved investors.
• It was observed that, since October 2004, the first and second of those brokerages performed systematic transfers of company shares on behalf of certain involved investors that kept accounts with them, usually upon the settlement date (T+3). On the same day the second top brokerage usually sold on behalf of the involved investors the shares it had received, depositing the resulting funds in the bank accounts of the involved investors (mostly kept with the same bank branch) usually on the day after the sale, i.e., prior to the date of the clearing of the sales.
• The audit detected deposits from the same bank branch on behalf of involved investors to the brokerage firms for the settlement of purchases of the stock.
• They were systematically executing purchases and sales on behalf of the involved investors during the sensitive period when the closing price of the share is determined.
• No recorded orders for the execution of transactions on the stock were presented by any of the brokerages.
• Most of the involved investors showed common patterns of association with each of the three brokerage firms.

The penalties

On the basis of all of the above, the CMC decided to impose total fines of €900,000 to the three brokerage firms and five individuals for violating anti-manipulation provisions, as well as additional fines of €24,000 to eight more involved investors. This specific case presents clearly the CMC's method of operation, in that it focuses mainly on the share of total volume commanded by the relevant trader or group of traders, as well as the relationships between the persons connected.

It should be mentioned, however, that such relationships are not always properly proven, and allegations made on the basis of various indications regularly suffice for fines to be imposed. The charged persons have the opportunity to present their case via a written statement, although the procedure followed has certain drawbacks. One should not fail to notice, however, that under the Market Abuse Law, the CMC has extensive inquisitive powers and it is expected that the use of those new powers which the law has provided will result in market abuse cases being more effectively approached by the regulator.
·  Michael Tsibris is co-founding partner of Moussas & Tsibris and leads the capital markets team. He has an extensive practice focused on capital markets transactions, financial services regulation, banking and finance and all types of mergers and acquisitions. He speaks English, French and German.