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The Disciplinary Committee of Nasdaq Helsinki Ltd has imposed a warning and a fine of EUR 75,000 to Pihlajalinna Plc (trading code: PIHLIS) due to the breaches of the Rules of the Stock Exchange (the “Rules”) of Nasdaq Helsinki Ltd (“the Exchange”). Pihlajalinna Plc (“the Company”) breached the Rules on the timing and content of the disclosure of inside information when announcing a co-operation agreement on June 3, 2019. Furthermore, the Company breached the Rules on organizing the administration of the listed company.
Events
PIhlajalinna Plc disclosed not until Monday June 3, 2019, at 8.00 am. a release on the co-operation agreement it had entered on Friday May 31, 2019, at 7 pm. The Company had already before the signing of the co-operation agreement prepared the disclosure but did not see announcing necessary at that time because the Exchange was already closed. Furthermore, the Company did not have resources available for the disclosing in the evening of May 31, 2019, when the co-operation agreement was signed.
According to the release, classified as a disclosure of inside information, Pihlajalinna Plc and Pohjola Insurance Ltd (OP Insurance Ltd until 31 May) had signed a co-operation agreement on May 31, 2019, aiming to pilot a new kind of customer service model for the customers of Pohjola Insurance Ltd in two municipalities. No other information on the agreement was announced in the disclosure. Pihlajalinna Plc had not supplemented its release with more information after the Exchange’s Market Surveillance had requested it to do so on June 3, 2019. After that Pihlajalinna Plc was not willing to discuss the supplementing of the disclosure with the Exchange’s Market Surveillance. In addition, in the beginning of June there had been an interruption in keeping the insider list established by the Company to administrate the inside information.
Content of the regulations
According to the Market Abuse Regulation and the Rules the inside information shall be disclosed as soon as possible in such a manner that information is available in a non-discriminatory way enabling fast access by the public and that a complete, correct and timely assessment of the information can be made. Furthermore, the Rules require a listed company to organize its administration in a manner enabling the compliance with its obligation to provide the market with reliable, accurate and up-to-date information. The regulations also require that a listed company shall draw up an insider list of those persons who have access to inside information not disclosed.
Timing of the disclosure
The Disciplinary Committee states in its decision that the purpose of the regulations is that very little time may elapse between the occurrence of the inside information concerning the issuer and the disclosure of it to the market, and no longer than is necessary to compile and disseminate the information. If the conditions for the delayed disclosure are fulfilled and the decision on the delay has been made, the delayed inside information shall be disclosed as soon as possible when the reason for the delay does not exist anymore.
The Company had drawn up an insider list on April 15, 2019, and simultaneously decided to delay the disclosure of the inside information based on the negotiations of the agreement. When the signing of the co-operation agreement concluded the negotiations on May 31, 2019, the reason for the delayed disclosure ceased to exist also in the opinion by the Company.
Because the postponement of the disclosure over the weekend was not necessary in order to compile or disseminate the information, the Disciplinary Committee stated that the Company did not have an acceptable reason to not to follow the regulatory obligation to disclose the information as soon as possible. The Committee also stated that such an acceptable reason can neither be the fact that the Exchange was not open during the weekend which the Company had referred in its explanation. This especially derives from the fact that the share or other financial instrument of a listed company can be, like the share of Pihlajalinna Plc, traded on other market venues in different time zones with different trading hours compared to the Exchange.
Because the Company had preparedness and possibility to give the announcement right after the agreement had been entered on May 31, 2019, and because it had not conducted in such a way, the Company had failed to follow the regulations on the timely disclosure.
Content of the disclosure
The Discliplinary Committee states that the disclosure on the inside information shall be specific enough and accurate in order to facilitate complete and correct assessment of it and making conclusions on the potential effect of the disclosed facts on the price of the financial instruments. The listed company shall give sufficient information of the value and other main contents of the agreement. Furthermore, if it is difficult to determine the financial effects of the co-operation agreement, it is in accordance with the Rules to provide a clear description of the reasons, purpose and related plans of the agreement.
The Company argued that the determination of the exact financial effects of the co-operation agreement at the time of the disclosure was not even possible due to piloting taking place at the beginning phase of the agreement and that the agreement did not contain any minimum purchasing requirement.
The Disciplinary Committee states in its decision that since the Company knew all the provisions of the co-operation agreement and since it had assessed the value of the agreement, the Company had already on May 31, 2019, available all the necessary information to disclose the information in a complete and correct way. This view is also supported by the fact that the nationwide co-operation between the contract parties and disclosure, following the piloting phase, on September 4, 2019, was based on the same co-operation agreement signed on May 31, 2019.
The Discliplinary Committee states that the Company’s disclosure on June 3, 2019, did not provide information on the value of the agreement. In case the assessment of the financial effects of the co-operation agreement has been impossible as argued by the Company, the Rules require that a description of the main content, relevance and potential of the agreement should have been provided by the Company. In conjunction to that the Company could have and should have described the uncertainties related to the agreement such as the dependence of the successful piloting for the nationwide co-operation or that there was no minimum purchasing requirement. As a listed company the Company should have taken care that it discloses all such information which facilitiates informed and correct conclusions on the potentional financial effects on the price of the financial instrument. The regulations do not allow that information can be kept undisclosed based on business secrecy or on a requirement by the contracting party. If some fact potentially affecting substantially the price of the financial instrument is not disclosed, it is as such regarded as inside information and as being under the regulation of the disclosure obligation.
In the decision it is further noted that the disclosure on June 3, 2019, does neither state at all the possibility for a nationwide co-operation following the piloting of the services nor this possibility can be reliably concluded based on the content of the disclosure. The disclosure do not either contain the information if the Company is starting new co-operation in the unknown municipalities or if the Company starts a piloting of a new customer service model in those municipalities the Company have already had co-operation.
The Disciplinary Committee summarizes in its decision that the Company’s disclosure on June 3, 2019, did not include specific enough and accurate information based on which the effect of inside information on the price of the financial instrument could have been assessed completely and correctly.
Organization of the administration
The Discliplinary Committee states in its decision that the proper organization of administration in each situation requires that the listed company has prepared itself with necessary resources for proper disclosure of inside information. Although the Company had prepared to announce the co-operation agreement in advance, it, according to the Company’s statement did not have necessary personnel resources available to disclose the release in the evening of the May 31, 2019. This has partly influenced that the Company’s disclosure has not been timely.
The Disciplinary Committee also states that the maintaining of the insider list of the co-operation agreement should have been continued uninterruptedly also after June 3, 2019, covering the undisclosed inside information related to the co-operation agreement. Although the interruption in maintaining the insider list had been a short one, the legal position of the persons registered to the insider list had changed for that time period. In addition, the Company has told that the started co-operation had been communicated on a personal level to the customers of the contracting party. The Company had also informed its own personnel about the piloting. Thus, for example undisclosed information on the municipalities where the piloting had been started, had been delivered to a larger group of people than those who had been registered to the insider list.
Based on these grounds the Disciplinary Committee states that the administration of Pihlajalinna Plc has not been organized as required by a listed company when the Company was disclosing the co-operation agreement and when it was administrating the inside information related to the co-operation agreement.
Assessment of sanctions
The Disciplinary Committee emphasizes in its decision that timely, complete and correct disclosure is one of the main obligations of a listed company and the negligence of it is likely to substantially affect the trustworthiness of the operation of the securities markets and the Exchange.
In addition, the Disciplinary Committee have, when assessing the sanctions, paid attention to the conduct of the Company in this matter. Pihlajalinna Plc had not taken into account the advice given by the Exchange before it disclosed the release and did not supplement the disclosure after being requested by the Exchange either. Further, the representative of the Company had during the discussions with the Exchange and before the disclosure of the co-operation agreement, inquired about the sanctions to be imposed for a failure to disclose information in accordance with the Rules. This refers to a recognized risk taken by the Company to breach the Rules. According to the Disciplinary Committee, the above referred conduct of the Company demonstrates a disregard of the Rules, the guidance provided by the Exchange and, as indicated by these, the good practice on the securities markets. This is likely to undermine the Exchange’s possibilities to arrange the operation and monitoring of a reliable and equal trading venue.
On the whole, the Disciplinary Committee considers the breaches of the Rules committed by Pihlajalinna Plc to be considered severe and the Company’s attitude to the Rules reproachable.This has been taken into account as an increasing factor when imposing the amount of the disciplinary fine.
Resolution statement
Pihlajalinna Plc has on June 3, 2019, when disclosing the co-operation agreement entered into on May 31, 2019, breached the rules 2.3.1.1 and 2.3.1.2 of the Rules of the Stock Exchange. Furthermore, Pihlajalinna Plc has breached the rule 2.2.4.3 on the organization of administration.
As compatible sanction by the Rules, the Disciplinary Committee imposes a warning and a disciplinary fine of EUR 75,000 to Pihlajalinna Plc.
The main argumentation and the resolution statement shall be disclosed by the Exchange.
