Direttore Scientifico: Claudio Melillo - Direttore Responsabile: Serena Giglio - Coordinatore: Pierpaolo Grignani - Responsabile di Redazione: Marco Schiariti
Tags Articoli taggati con "stock market"

stock market

(by dr. Anna Płońska[1])

In Poland white collar crimes severely affect the investor’s confidence, as well as the national economy in general. Trading in securities is very important in today’s economy, threatened by the development of new forms of stock exchange offences, committed for instance via the Internet. Such offences are awkward to detect, emphasizing the need for legal protection not only of the stock market in general, but also legal protection of investor’s assets, as well as a variety of financial operations.

Securities dealing in Poland and elsewhere give rise to several legal issues that are raised by civil, economic, financial and criminal law. The rule of equal treatment of all the participants of the stock market operations requires the promulgation of regulations and the enforcement of these regulations aimed at preventing illegal conducts. It is also important to note that in the development of a global economy, securities dealing in Poland can have a serious impact not only on the Polish economy but also on other capital markets.

In order to adapt into Polish legislation the EU provisions and to achieve a harmonization with EU Directives the Polish Parliament on July 29th 2005 passed three following acts: the Act on Trading in Financial Instruments (TFI Act)[2], the Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organized Trading and Public Companies (PO Act)[3] and the Act on Capital Market Supervision (CMS Act)[4]. The other is the Act of July 21st 2006 on Financial Market Supervision (FMS Act)[5], which provides the supervision of The Polish Financial Supervision Authority (FSA). FMS Act provides also that The Warsaw Stock Exchange (WSE) shall cover the Polish capital markets governed by the three acts mentioned above. These Acts came into force on October 24th 2005, and, together with other statutes, became ”the new constitution of the Polish capital market”.

The PO Act defines rules and conditions for a public offering of securities and for seeking admission of securities or other financial instruments to exchange trading and it sets out a catalogue of illegal behaviors which would violate the disclosure provisions. For example if: a person publicly proposes the acquisition of securities without the statutorily required issue prospectus, the distribution of a notification, including an information memorandum, or making such a document available to the public or to interested investors is criminally responsible and is liable to a fine up to PLN 1 million or an imprisonment for up to two years, or both (Article 99); a person responsible for information to be included in a prospectus or other information documents, delivers untrue data or suppresses true data materially affecting such information is criminally responsible and liable to a fine of up to PLN 5 million or imprisonment for from six months up to five years, or both (Article 100); or if a person, who is required to disclose to the FSA information in his possession, discloses misrepresents or suppresses such information thereby materially affecting information,” is also criminally responsible and liable to a fine up to PLN 2 million (Article 101). The criminal liability occurs also when a perpetrator prevents or obstructs the performance of the actions referred to in Article 68 of the PO Act (Article 102); when a perpetrator acts on behalf or in the interest of a legal person or an organizational unit without legal personality, in defiance of the obligation referred to in Articles 38a.1,.42a.1 and 51.1 (Article 103), and also when he or she fails to make available to the public a supplement to the issue prospectus or information memorandum fails to deliver a supplement to the issue prospectus or information memorandum (Article 104).

Violations of the legal provisions set forth in the TFI Act are mostlyrelated to misrepresented information as well as to a failure to disclose. For instance, using or disclosing information contrary to the professional secrecy obligation imposed on a person is punishable with a fine of up to PLN 1 million or imprisonment for up to three years, or both (Article 179).

In order to provide the competency of securities intermediaries and to protect Polish capital market, according to the act mentioned above, it is violation of the law for a person to engage in trading in financial instruments as a broker without having the required license to do so. Such violation is punished with a fine of up to PLN 5 million (Article 178).Capital market supervision is regulated by a statute seeking to deal with offences affecting stock exchanges, primarily the WSE. For example, Article 45 of the CMS Act provides that a person, “who, acting in the name of or in the interest of a regulated entity, fails to fulfill his or her obligation to block the account of a person alleged to have violated a market rule shall be liable to a fine of up to PLN 1 million or imprisonment for up to two years, or both.”

The TFI Act provides also the criminal provisions related to disclosing insideinformation (Article 180), using insideinformation (Article 181), issuing arecommendation or inducing another person to acquire or dispose of financial instruments towhich inside information relates (Article 182), market manipulation (Article 183), as well as preventing or obstructing the performance of the actions referred to in Articles 30.1-3, 37 in relation with Articles 30 and 64, 88, 90.2-3 and 122 and acting in the name or interest of alegal person or an organizational unit without legal personality:failing to perform the transfer of securities, other financial instruments and cash ordocuments relating to the keeping of the relevant accounts, contrary to the orderreferred to in Article 89.4, or failing to archive or store documents or other data carriers related to the conductedbrokerage or custodial activities in breach of the obligation referred to in Article 90.1.

The biggest change brought about by the TFI Act was that, in some cases, criminal sanctions were replaced with administrative sanctions to assure the effectiveness of the law on the capital market. Under the provisions of TFI Act many criminal sanctions with their imposition of imprisonment were replaced with administrative sanctions imposing economic penalties. Criminal sanctions were thus held in reserve to deal with the most egregious violations of Polish law. Polish legislator placed emphasis on a pace of decisions submitting in administrative procedure. On the other hand sanctions imposing economic penalties can be more effective on the capital market. The reason stated for changing the law was to bring more effectiveness and certainly into disclosure and to prevent violations of the Polish capital market regulations. As is often the case criminalizing an act is not necessarily an effective means of inducing compliance. Accordingly the TFI Act imposes a money penalty of up to PLN 1 million on (a)“anyone who stabilizes the price of financial instruments, or orders such stabilization, in breach of the rules laid down in the applicable FSA regulation and disclosed in the issue prospectus”; on (b)“any entity which acquire its own shares in breach of law”; (c) “on anyone who acquires shares in a company operating a stock exchange market or an OTC market without being entitled to do so”;(d)“on anyone who fails to deliver information where there is reasonable suspicion that an instance of market manipulation has occurred”; and (e)“on anyone who fails to deliver information on any reasonable suspicion of illegal disclosure or use of inside information.[6]” Regulations promulgated under the Act require that entities subject to its provisions are obligated to promptly inform the FSA of each reasonable suspicion that a market manipulation has occurred or is in process. Regulated entities also must provide detailed information about suspected transactions, including in their report facts leading them to this suspicion, i.e., information enabling the identification of the person for whose account an order had been placed with them or with another. As such the report must indicate which other persons had participated in the transaction.

Recent statutes governing the capital market in Poland are aimed at the compliance with EU Directives required as a result of Poland’s admission to the European Union. Membership in the EU requires the law of a member State to be compatible with the minimum standards set forth in EU Directives[7]. The most significant directives are: The E.U. Prospectus Directive[8] and The E.U. Directive on insider dealing and market manipulation – Market Abuse[9], which recognizes that market abuse is a flexible term encompassing a wide area of wrongdoing. It may arise in circumstances where investors have been unreasonably disadvantaged, directly or indirectly by others who have used information which is not publicly available. Such activity distorts the price-setting mechanism of financial instruments and results in the dissemination of false or misleading information. Such conduct undermines the general principle that all investors must be placed on an equal footing[10]. It also results in market manipulation which the EU Directive defined as “a transaction or order to trade: (1) which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of one or several financial instruments, or (2) which secures, to a person, or persons acting in consort, the price of one or several financial instruments at an abnormal or artificial price level, unless the person who entered into the transactions or issued the orders to trade conforms to accepted market practices of the regulated market concerned,” i.e., actions having a deleterious impacts on market efficiency[11].

After Poland had adopted the EU Market Abuse Directive, the administrative penalties for market manipulation stated in TFI Act increased the penalties for the market manipulation. In addition to administrative sanctions, offender of the manipulation can be fined up to PLN 5 million, imprisoned for of up to five years, or both.

            Considering the CMS Act, the criminally liability occurs when a perpetrator, acting on behalf or in the interests of a supervised entity, fails to fulfil itsobligation to block an account (Article 45), as well as when a perpetratorprevents or obstructs the activities performed in the course of audit,administrative or explanatory proceedings (Article 46).

CMS Act with accompanying acts[12] consists of the fundamental regulations of Polish capital market. Emerging from a centrally controlled economy to a market economy, a cultural reaction to capitalism as a hindrance of individual equality had to be overcome. Modern market developments seek to prevent excesses by entities taking advantages of inside information and call for transparency.

Aside from securities offences affecting Polish stock market mentioned above, the provisions of the Polish Penal Code of June 6th 1997[13] (PPC) should be indicated as well. Articles 293-309 of PPC defines offences against business trading, and Articles 310-316 criminalize offences against trading in currencies and Securities trading.

The catalogue of the securities offences in PPC includes, among others: the offence of “counterfeiting or altering Polish or foreign money or other legal tender,”[14] punishable with imprisonment from 5 to 25 years; the offence of “dissipating false information or concealing information about the financial situation of the offeror in a securities trade,”[15] which is subjected to a penalty of imprisonment for up to 3 years; bringing into circulation counterfeit or forged currency, other means of payment or a document[16], as well as money laundering offence[17] and confidential information offence[18] which are also punishable by imprisonment.

The insider trading definition included in Article 266 § 1 of the PPC states that “a person, who in violation of the law or obligation he or she has undertaken, discloses or uses information with which he or she has became acquainted in connection with the function or work performed, or public, community, economic or scientific activity pursued shall be subject to a fine[19], the penalty of restriction of liberty or the penalty of imprisonment for up to 2 years”.

There is no doubts that information is the most valuable asset of the capital market. According to Oczkowski T.[20], confidence in the securities markets can be fostered only through “legal mechanisms, which are able to assure the maximum safety of securities’ trading and also through assurances of equal opportunities for all investors.”

A civil judgment may also be imposed by the Exchange Court for damage caused by public dissemination of untrue information or by the omission of information, which should have been included in documents prepared and made available in connection with a public offering. Thus, anyone publicly proposing the acquisition of securities without distributing a statutorily required issue prospectus, could be fined or imprisoned for up to two years, or both. Furthermore the person responsible for information in any documents who uses untrue data or suppresses true data, thus materially affecting such information, may be liable to a fine of up to PLN 5 million or a penalty of imprisonment for from six months to five years, or both. This law would also be violated when a person required to transmit to the FSA information regarding insider trading provides untrue information or suppresses true data. These violations are punishable by a fine of up to PLN 2 million[21].

This is reflected also by the provisions of the Polish capital market which considers insider trading one of the most serious offences. Insider trading is considered as an offence, which can be punished by a fine of up to PLN 5 million or imprisonment up to five years. Where the FSA suspects trading on inside information to have occurred, it can freeze the account owned by the defendant[22]. The most common cause of insider trading is that most business people forget that the joint stock company is not theirs but belongs to the shareholders. Management only controls this entity and thereby has access to confidential information. But inside information may also be obtained through other means of access. Having access to inside information seems to lead to temptation to use it as an easy way to obtain wealth, albeit by illegal means. Therefore insider trading leads to an erosion of investor confidence. In addition it is unfair to other investors not privy to such information.

The problem of securities offences affecting the stock market, as well as different forms of white collar crimes in Poland, constitutes a very specific phenomenon. Although there has been improvement in legal system and it has been harmonized with the EU laws, there is still a lot to be done. As Sarah N. Welling said “economic crime was simpler before capitalism”[23]. After many years of a communist system and a very weak economical situation, the general public was used to petty economic offences or even white collar crimes. The approach to the matter that white collar crimes are not as harmful and dangerous as crimes committed against the person or property is still noticeable in that country.

Nowadays, despite from well prepared regulations patterned after the European Union, a weak enforcement of these laws and regulations powers the effectiveness of prosecution and leads to a disregard of the problem by the Poland’s prosecution agency. Consequently, investors and other entities participating in securities trading are induced to take the risk accompanying violations to attain a fast and illegal profit, generally believing that they would be immune from because of exemption from punishment. Polish regulators should definitely train prosecutors to prosecute more effectively the conduct specified in Directive 2003/6/EC[24] and in the most recent amendment to the Polish securities law[25].

All these circumstances show that there is a good potential in legal resolutions, but the deficiency of an experience as well as of qualified experts causes that investors at the stock market can feel unprotected or uninformed enough. Polish legislation need to consider how to facilitate the damage actions by investors. It is significant to provide them trustworthy terms and regulations to encourage them to invest and remain at Polish capital market.

Note

[1]Dr. Anna Płońska – Assistant Professor at University of Wrocław, Faculty of Law, Administation and Economics in Wrocław, Poland.

[2]Journal of Laws of 2014, item 94.

[3]Journal of Laws of 2013, item 1382

[4]Journal of Laws of 2005, No. 183, item 1537

[5] Journal of Laws of 2012, item 1148 with Amendments.

[6]Article 173 point 4 and point 5 of the Act of July 29th 2005 on Trading in Financial Instruments; see also: “New law on the Polish capital market – major changes and market impact”, The Polish SEC 2005, page 19, http://www.kpwig.gov.pl/komunikaty/noweprawo.pdf.

[7] Treaty establishing the European Economic Community (EEC) Art. 189. See Treaty establishing the European Economic Community and connected documents, Luxembourg, Publishing Service of the European Communities, [s.d.], pp. 5-183, available at www.ena.lu/mce.cfm) and note E. C. Commission v. Belgium [1980] E.C.R. 1473* 1487(“The effect of the third paragraph of Article 189 is that Community Directives must be implemented by appropriate implementing measures carried out by the Member States. Only in specific circumstances, in particular where a Member State has failed to take the implementing measures required or has adopted measures which do not conform to a Directrive, has the Court of Justice recognized the right of persons affected thereby to rely in law on a Directive as against a defaulting Member State”).

[8]Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC, EUR-Lex, 2003/71/EC, Celex: 32003L0071.

[9]E.U.Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse), Official Journal L 96 of 12.04.2003.

[10]Article 39 of Act of July 29th 2005 on Trading in Financial Instruments, Journal of Laws of 2005, No. 183, item 1538 and Journal of Laws of 2006, No. 104, item 708, and see “Activities of the European Union, Summaries of Legislation, Transactions in securities, Market Abuse, http://europa.eu/scadplus/leg/en/lvb/l24035.htm.

[11]E.U. Directive 2003/6/EC, Article 1(2)(a) of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse), Official Journal L 96 of 12.04.2003.

[12]Note the Capital Market Supervision Act, Articles 45 – 47, the Act on Public Offerings, Conditions Governing the Introduction of Financial Instruments to Organized Trading and Public Companies, Articles 99 – 104, and the Act on Trading in Financial Instruments, Articles 178 – 184.

[13]Journal of Laws of 1997, No. 88, item 553 with amendments.

[14]Article 310 § 1:”Whoever counterfeits or alters Polish or foreign money, other legal tender, or a document which entitles one obtain a sum of money or contains an obligation to pay capital, inters, share of profits, or verifies a share in a company, (…) shall be subject to imprisonment for a minimum term of 5 years or the imprisonment for 25 years.”

[15]Article 311. “Whoever, in the documentation relating to trade in securities, dissipates false information or conceals information about the standing of the offeror, which is of essential importance for the purchasing, selling of securities or increasing or decreasing the holding shall be subject to imprisonment for up to 3 years”.

[16] Article 312: „Whoever introduces into circulation counterfeit or altered money which he himself received as genuine or the document specified in Article 310 shall be subject to a fine, the penalty of restriction of liberty or the penalty of deprivation of liberty for up to one year”.

[17]Article 299. § 1: “Whoever receives, transfer or transport abroad, assists in its transfer of title or possession of legal tenders, securities or other foreign currency values, (…) obtained from the profits of offences committed by other persons, (…) or takes other actions which can prevent, or make significantly more difficult, determination of their criminal origin or place of deposit, detection or forfeiture shall be subject to imprisonment from a term of between 6 months and 8 years”.

[18]Article 266. § 1. “Whoever, in violation of the law or obligation he has undertaken, discloses or uses information with which he has become acquainted with in connection with the function or work performed, or public, community, economic or scientific activity pursued shall be subject to a fine, the penalty of restriction of liberty or the penalty of deprivation of liberty for up to 2 years”

[19]In Polish Criminal Law a fine is imposed in term of daily rates defining the number of daily rates from 10 to 540. The daily rate can not be lower than PLN 10 and not higher than PLN 2000. But in practice the fine is not lower that PLN 100 nor higher than PLN 720,000.

[20] Tomasz Oczkowski, Oszustwo jako przestępstwo majątkowe i gospodarcze, Zakamycze 2004, p. 193.

[21] Articles 96-104 of the PO Act.

[22]”KPWiG Locks Brokerage Account Tied to Probe on Insider Trading”, Polish News Bulletin, March 16, 2006, 3/16/06 Polish News Bull.

[23] Sarah N. Welling, White Collar Crime from Scratch: Some Observations on the East European Experience, Symposium: The American Criminal Justice System Approaching the Year 2000, William and Mary Law Review, Fall 1993, 35 WMMLR 271.

[24] Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (Market Abuse), Official Journal L 96 of 12.04.2003.

[25] Robert F. Schwartz, Monitoring a Game of Winks, Nods, and Risk: Derivatives Regulations in the E.U. and Poland, Brigham Young University International Law & Management Review, 2 B.Y.U. Int’l & Mgmt. Rev. 233 *283.

Vai alla barra degli strumenti