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Corporate law and governance, financial transaction taxes

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Financial infrastructure and financial market regulation


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State Companies Stall FFMS Fight Against Insider Trading

19.02.2013 19:34 / Vedomosti

“Federal Financial Markets Service has made progress in investigating manipulation, however, insider trading is still a very difficult task, a stumbling block”, said Deputy Head of FFMS Information and Monitoring Department Denis Gavinsky at yesterday’s press conference. This is also partly due to the fact that insider information is used by state-owned companies, said Gavinsky: “Insider dealing in state companies is a special case – here we currently lack the experience of interaction with state companies”. The situation must change, he said. FFMS will ask for extended powers, admits Pankin: “We need access to law enforcement agencies’ information”. When asked how exactly state companies block investigation, Pankin declined comment, stating only that “insider trading can be investigated, but it’s really difficult at present”.

The market has witnessed a number of state company share price overheated prior to important corporate announcements. Rosneft shot up 9% two days before the ExxonMobil strategic partnership signing last August. Kalina shares showed even more impressive growth in September-October 2011, some 75% two weeks in advance of acquisition by Unilever (82%). Both cases were investigated by FFMS, but nothing was found, said a source. Market participants also called insider dealing in recent VTB shares trading. Over three days — prior to breaking the story that Quatar Sovereign Fund could buy into the bank capital — the share price rose from 0,528 to 0,56 copecks at high volumes, says an investment bank trader.

“We have no comment”, said VTB press office. Other state companies also preferred to keep silent.

FFMS attention to state companies is reasonable, says Finam President Vladislav Kochetkov: “They are the most capitalized, these shares attract a huge cash flow, and consequently, there is more money to be made on Sberbank or Gazprom insider info”.

Investigation continues on several cases of insider dealing, said a FFMS source, not naming any names. The procedure is extremely hard, besides, short timeframes complicate matters: FFMS has a maximum of eight months to complete the check – next to nothing by global standards, he insists.

The core of the matter is that the FFMS investigation is unlike a law enforcement agency procedure: no tapping, no email monitoring (sometimes the only way you can find a perp in insider trading), FFMS merely sends queries, explains Ernst & Young Partner Mikhail Makhotin. Companies may use any number of formal pretexts, notes Makhotin: “A company with GR clout may ignore the letter by claiming it’s ‘inaccurately formulated’ or ‘irrelevant to the case’; information requested by FFMS could be passed off as ‘classified’”. Then the only available sanction is a several thousand roubles’ fine or a revoked license, says Makhotin.

Margarita Papchenkova, Anton Trifonov

Project Group №1