Ukraine: Improvement Of Insider Dealing And Stock Market Manipulation Laws In Ukraine

On April 21-22, 2011, the Ukrainian Parliament adopted two laws (the"Laws"), aimed at preventing insiderdealing and stock market manipulation in Ukraine, namely:

  • the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine regarding Inside Information", No.3306-VI (effective from May 25, 2011), and
  • the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine on Prevention of Legalization (Laundering) of Proceeds from Crime", No.3267-VI (effective from May 19, 2011).

The adoption of the Laws clearly evidences the intention of Ukrainian lawmakers to bring national legislation in line with the standards of the Directive 2003/6/EC on Insider Dealing and Market Manipulation (Market Abuse), dated January 28, 2003. It marks an unequivocal abolition by the legislator of the old practices which prevented a smooth operation of the securities market. Under the old approach, the State Commission for Securities and Stock Market ("Commission") compiled an exhaustive list of information that was deemed as 'inside information' with the practical consequence of equating it with genuine market information, effectively disregarding the positive effect thereof on the pricing mechanism of securities. The Laws introduce the notion of market manipulation and define other prohibitive practices that would otherwise lead to market abuse. Overall, the Laws apply not only to securities, but to all financial instruments traded on an organized stock market (stock exchange).

From now on, 'inside information' shall mean information which has not been made public, relating to the issuer, its securities and derivatives traded on the stock exchange, or transactions facilitated through the stock exchange infrastructure, and  which, if it were made public, would be likely to have a significant effect on the prices of securities and derivatives, and which is subject to obligatory disclosure pursuant to law. Criminal liability is provided for intentional unlawful disclosure, transfer, provision of, or access to inside information, as well as the soliciting recommendations on the basis of such information as to the purchase and sale of securities or consummation of transactions using inside information for one's own benefit or for the benefit of others.

Price manipulationon the stock market is generally defined as consisting of transactions or actions that facilitate such prices of financial instruments that would otherwise not exist in their absence, such as:

  • consummating or attempting to consummate transactions that give, or are likely to give, false or misleading signals as to the supply, acquisition or cost of a financial instrument;
  • consummating transactions through intentional unlawful acts (including the use of inside information);
  • dissemination of information through the media, including electronic media, which gives, or is likely to give, false or misleading signals as to prices of, demand for, supply of, or trade volumes of financial instruments on the stock exchange;
  • purchase or sale of financial instruments at the close of the market with the effect of misleading those investors acting on the basis of closing prices;
  • one-day concurrent conclusion of sale and purchase agreements with respect to financial instruments in the market participants' own interests or for the account of one and the same client, under which each market participant shall act as the seller and the buyer of one and the same financial instrument, including their quantity and at the same price, or which have no apparent economic justification or lawful purpose for at least one of the market participants (or their clients);
  • one-day concurrent consummation of, or an attempt to consummate transactions, including application for the purchase and sale of financial instruments without no apparent economic justification or lawful purpose, if, as a result thereof, the holder of such financial instruments remains unchanged;
  • the conclusion of agreements with financial instruments on the stock exchange at the price substantially deviating from their actual price during the same trading hours (current price) by making open bids.

Thus, the Laws provide for a more stringent liability for insider dealing and market manipulating, while the existing rules were aligned with the EU laws. While these measures are supposed to increase the transparency and attractiveness of the Ukrainian securities market, the lack of experience of Ukrainian regulators creates additional risks that the new rules, especially the prohibition inside information exchange, will be applied broadly without a proper understanding of the basic principles of securities market monitoring and regulation.

To ensure compliance of the new legislation with the European Union standards the expert team of  Ukrainian-European Policy and Legal Advice Centre (UEPLAC) Phase V made an a comprehensive compliance analysis of the draft Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine regarding Inside Information", the results of which were taken into account in the final version of the Laws. The team included internal UEPLAC experts and a contracted external expert Vladimir Sayenko, partner at the Kyiv-based law firm Sayenko Kharenko.

In 2002 Vladimir Sayenko defended his doctoral thesis on "Legal Regulation of the Use of Inside Information on the Securities Market". He was also one of the authors of the relevant sections on insider dealing prohibition of the Law of Ukraine "On Securities and Stock Market" adopted in 2006.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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