Securities market conduct
Published: 31 March 2022
The general market conduct rules and compliance monitoring should promote investor protection and effective allocation and pricing of capital. The rules on unlawful insider dealing, market manipulation and due care in handling inside information are central. Finanstilsynet also oversees compliance with the rules on the preparation of insider lists, the duty to investigate, the prohibition of unreasonable business methods, the notification requirement for primary insiders and rules requiring the disclosure of large shareholdings.
Supervision, monitoring and control
Finanstilsynet cooperates closely with the National Authority for Investigation and Prosecution of Economic and Environmental Crime (ØKOKRIM) and Oslo Børs on monitoring compliance with the market conduct rules.
The majority of cases investigated by Finanstilsynet in 2021 were reported by investment firms, foreign authorities and investors. Many cases were referred by Oslo Børs or initiated by Finanstilsynet itself in response to market events. Finanstilsynet’s own surveillance system, SKADI, has triggered a large number of alarms that have led to further investigation.
Cases of insider dealing and market manipulation are often time-consuming, above all where the investigation requires identification of foreign investors who have traded ahead of particular market events. This entails extensive contact with foreign fund managers and supervisory authorities.
In 2021, Finanstilsynet investigated the following cases:
- 143 cases of possible unlawful insider dealing and/or breaches of confidentiality or the obligation to maintain insider lists
- 135 cases of possible market manipulation / unreasonable business methods
- 60 cases on disclosure of large shareholdings
- 103 notifications from private individuals
- 44 cases on the notification requirement for primary insiders
- 34 cases on short positions requiring notification
Finanstilsynet received a total of 199 reports from investment firms and marketplaces under obligation to report transactions giving rise to suspicion of insider dealing or market manipulation. In addition, Finanstilsynet received 79 reports from foreign supervisory authorities on possible insider dealing or market manipulation.
In 2021, Finanstilsynet imposed 23 administrative fines for violation of the disclosure requirement for large shareholdings and four administrative fines for violation of the notification requirement. One fine was levied for non-compliance with the provisions on updating primary insider lists. Finanstilsynet also imposed 18 administrative fines for violation of the Short Selling Regulation. Finanstilsynet expects this to have a deterrent effect.
Notifications to the prosecuting authority
Finanstilsynet reported one case of suspected unlawful insider dealing and/or breach of confidentiality to the prosecuting authority in 2021.
Follow-up of reported cases
Finanstilsynet collaborates with ØKOKRIM and local police authorities on reported cases. In 2021, Finanstilsynet provided assistance to foreign supervisory authorities in a number of cases relating to market conduct and received such assistance in some instances. This is in accordance with obligations under international agreements.
Short Sale Register
Finanstilsynet’s short sale register has been established in accordance with pan-European regulation on short selling. There is a general prohibition against uncovered short sales. This means that the seller as a rule must have ensured access to the securities so that actual settlement can be effected. This can be done through borrowing or by entering into an agreement ensuring timely delivery. The regulation allows exceptions from the prohibition against uncovered short sales, for example for market makers.
According to the Short Selling Regulation, investors holding short positions in shares or government debt that exceed set thresholds shall report these to the supervisory authority. The reception and disclosure of short positions takes place in the Short Sale Register at ssr.finanstilsynet.no. Net short positions above or equal to 0.5 per cent are publicly available information. Other reported positions are available only to Finanstilsynet and ESMA. Finanstilsynet’s website on short sales contains relevant information for many and is frequently visited.
As a consequence of the Covid-19 crisis and the financial market turmoil, ESMA and the EFTA Surveillance Authority introduced a lower threshold for net short positions to be reported to the register between 16 March 2020 and 19 March 2021. The previous 0.2 per cent threshold was temporarily lowered to 0.1 per cent. In addition, Finanstilsynet had to send data on short selling of shares to ESMA on a daily basis. Finanstilsynet thus received an increasing number of enquiries for guidance from investors. In addition, there was a rise in the number of positions required to be reported and updated.
In 2021, some 1 050 changes to positions in 45 financial instruments corresponding to or exceeding 0.5 per cent were made public. With respect to positions that are not publicly available, i.e. positions below 0.5 per cent subject to the disclosure requirement, 3 800 positions in 155 instruments were notified to Finanstilsynet. 164 different investors reported positions in 2021.
During 2021, Finanstilsynet received approximately 370 enquiries by email about the short sale reporting. 18 administrative fines were imposed for violation of the Short Selling Regulation in 2021. In addition to the administrative fines, a number of undertakings were also warned of minor violations of the regulation. Finanstilsynet sends statistics of short positions in shares and government debt to ESMA on a regular basis.
Pan-European rules on transaction reporting have been implemented in the Norwegian Securities Trading Act. The transaction reporting system (TRS) covers all EEA countries and is designed to receive reports on executed transactions in financial instruments from investment firms and trading venues. Financial instruments are defined as all financial instruments listed on a trading venue in the EEA and derivatives with such listed instruments as the underlying.
The purpose is to give national supervisory authorities a complete overview of the securities transactions carried out in the market. TRS provides an important basis for other supervision in the securities market area, and data from TRS are used, among other things, to detect market abuse.
In 2021, Finanstilsynet received some 220 million approved transaction reports via TRS. 34 million of these were from investment firms in Norway. In addition to the approved transaction reports, Finanstilsynet received approximately 4 million transaction reports that had been rejected or deleted. In 2021, 17 per cent of these reports were from Norwegian investment firms, compared with 13 per cent in 2020. As a result of Brexit, the UK, which previously accounted for about 40 per cent of the transactions, no longer provides such reports. Germany is now the largest foreign country reporting transactions, accounting for approximately 30 per cent.
Since the current TRS solution was established, Finanstilsynet has observed recurring errors and non-reporting or incomplete reporting that have not been rectified by the investment firms on their own initiative. Following the systematic reviews of the investment firms carried out in 2020, parts of the transaction reporting have improved. However, data quality is still unsatisfactory. Finanstilsynet’s investigations still show a large number of serious errors and shortcomings. Finanstilsynet will continue to focus on quality enhancement in the period ahead.
Infringement of the disclosure obligation
Based on a decision dated 9 December 2021, Finanstilsynet imposed an administrative fine of NOK 1 million for infringement of the obligation to disclose large shareholdings as set out in the Securities Trading Act. This is the highest fine imposed by Finanstilsynet for infringement of the disclosure obligation. The disclosure obligation was infringed when the firm exceeded the 5 per cent threshold for disclosure of large shareholdings in connection with a divestment. When determining the fine, emphasis was placed on the gravity of the negligence. Given the firm’s position in the market, it could not be ruled out that a timely disclosure would have entailed a lower share price than that obtained after the disclosure obligation entered into force. An important point made by Finanstilsynet, however, is that failure to disclose that the threshold was exceeded before the large majority of the shares had been sold contributed to undermining confidence in the orderly functioning of the securities market, cf. Section 1-1 of the Securities Trading Act. Finanstilsynet’s decision has been appealed to the Ministry of Finance.
Market abuse (MAR)
Rules corresponding to the pan-European Market Abuse Regulation (MAR) were implemented in the Securities Trading Act and the Securities Trading Regulations on 1 March 2021. The market conduct rules previously set out in the Securities Trading Act concerning insider dealing, use of inside information, market manipulation and the notification obligation of primary insiders have been retained in the new rules, which also include a number of changes. The scope of application of the rules has been expanded, and they apply in full to financial instruments traded at multilateral trading facilities. For issuers of financial instruments traded on a regulated market, the rules on the notification obligation for primary insiders and close associates have been expanded to apply to issuers of all financial instruments, including bond issuers. Finanstilsynet has been authorised to impose administrative fines in a number of cases, for example in connection with infringement of the rules on market manipulation, unlawful dissemination of inside information and the obligation to keep insider lists.
In connection with the changes in Norwegian law, Finanstilsynet has devoted considerable resources to providing information about the new legislation, which includes written guidance on Finanstilsynet’s website, seminars and speeches. Finanstilsynet has also handed enquiries from issuers, primary insiders and advisers on an ongoing basis.
In 2021, a number of so-called finfluencers provided advice and guidance on investments, targeting young people. During the year, Finanstilsynet provided articles in various media and published opinion pieces to provide relevant guidance to both the finfluencers and those who make use of their services/advice. Trading in virtual currencies is currently not regulated. It has therefore been all the more important to inform those who invest in such currencies about the associated risks.
Consultation document on the SME regulations
On commission from the Ministry of Finance, Finanstilsynet prepared a consultation document in 2021 on the implementation in Norwegian law of pan-European rules on the promotion of growth markets for small and medium-sized enterprises (SME Regulation). The rules entail that certain obligations for enterprises listed on SME growth markets will be relaxed. The rules also result in amendments to provisions relating to market abuse and prospectuses. The Ministry of Finance circulated the document for comment in August 2021, and the matter is currently under consideration by the Ministry.
Other supervised sectors:
- Banks and other financing activity
- Insurance and pensions
- Infrastructure in the securities area
- Investment firms
- Mutual funds and collective investment schemes
- Approval of prospectuses – transferable securities
- Financial reporting enforcement – listed companies
- International cooperation
- Money laundering and financing of terrorism
- Digital finance and IT risk