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Warning issued to Société Générale on improper warrant trading


Warning issued to Société Générale on improper warrant trading The Disciplinary Committee of Helsinki Stock Exchange has issued Société Générale, a Member firm, a warning and a disciplinary fine of EUR 20,000 for breaching the Norex Member Rules. The Disciplinary Committee considered that the Member firm had breached the Rules by using its dominant position improperly in trading in a covered warrant. The trading rules prohibit placing orders and entering into trades which are intended to improperly influence on the price. The order placing must reflect the current market value of a warrant. According to the Norex Member Rules, when establishing the current market value, for example, changes in the instrument pricing during the day and preceding days, volatility, general changes in the pricing of equivalent instruments and other significant conditions should be taken into account. The improper trading took place on September 23, 2005 on a covered warrant (trading code 5VNO1EW140) issued by the Member firm itself. Regardless of the fact that there were no relevant changes in market conditions, other pricing elements or in the pricing of another warrant with similar terms, the Member firm raised within the last 11 minutes of the trading day the price level of Warrant approximately 49% after finding out a counterparty had sold short the warrant. The stated reason for this was an intention to discourage the client of short selling of warrants and to cover counterparty risks. The price level changing inflicted financial losses to the counterparty, who could, in practice, buy the Warrant only from the market maker and had the obligation to cover the short selling. In its consideration the Disciplinary Committee stressed that the Member firm as the market maker had a dominant position over the trading in the warrant and as such an ability to alter the pricing levels. The Committee considered that the market makers possible needs to cover counterparty risks can not be deemed a justification to influence on reliable price formation. The Member firm had the intention to influence the price level in order to discourage short selling. The Committee considered that the measures used to pursue this intention were improper as the order placing did not take into account the current market value and the order placing thus improperly influenced the price levels. The Disciplinary Committee considered that the reliability of the price formation is the key element in the stock exchange efficiency and trustworthiness. Therefore, the Committee regards the breach as a serious one. The Disciplinary Committee of the Helsinki Stock Exchange issued Société Générale with a warning for breaching the Norex member rules. In addition to the warning, the Disciplinary Committee ordered Société Générale to pay a disciplinary fine of twenty thousand euros (EUR 20,000) to Helsinki Stock Exchange. The Helsinki Stock Exchange and the Stockholm Stock Exchange donate their disciplinary fines to a foundation that sponsors research related to securities markets in Finland and Sweden. When determining the disciplinary fine of EUR 20,000, the Committee pays attention to the nature of the matter both the size and circumstances of the company. For further information, please contact: Timo Rintanen, Secretary of the Disciplinary Committee, Head of Enforcement +358 9 6166 7640 Janne Seppänen, Vice President, Head of Surveillance Finland +358 9 6166 7382 PDF

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