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The Disciplinary Committee of the OMX Nordic Exchange Helsinki has issued Kaupthing Bank Oyj, Finland, and one of its exchange traders a warning for breaching the member rules.
The Disciplinary Committee of the OMX Nordic Exchange Helsinki (Exchange) issued a warning to Kaupthing Bank Oyj and an exchange trader of Kaupthing Bank Oyj for breaching the Norex Trading Rules 4.6.1 on reporting warrant manual trades. According to the rule the orders placed in the order book, automatically matched trades and manual trades must reflect the current market value of the instrument in question and constitute genuine orders and trades.
Kaupthing and the exchange trader had on July 16th, 2007, and July 17th, 2007, reported manual trades on specific warrants. These trades were ordered by one person on both buy and sell side, both for own account and for the account of another. The Exchange Surveillance noticed that the volumes of the trades exceeded the number of outstanding warrants. It was also considered exceptional to report warrant trades as manual trades. Among other things, these factors raised suspicion that the manual warrant trades would not constitute genuine orders and trades.
Statements
Kaupthing Bank and the exchange trader stated the following: The warrant trades in question were based on client orders. The clients in question were separate legal persons (limited companies), who do not control one another. The trades were executed within spread (i.e. to prevailing market price). Based on publicly-available information regarding issuance of the warrants, the Exchange Trader could not reasonably foresee a situation, where the trades could result a settlement failure. Nevertheless, Kaupthing has reviewed its internal guidance in order to prevent similar issues arising in the future.
Disciplinary Committee consideration
The Disciplinary Committee considered that the warrant trades in question were exceptional in several respects. The trades were not concluded by combining the interests of the different parties. Instead, one person (A) had given orders to trade on behalf of himself and his fully owned investment company and based on an authorization also on behalf of another person’s (B) fully owned investment company. Due to these circumstances the exchange trader should have sought more information on the purpose and genuinity of the orders and the possibilities to settle the trades in order to ascertain that the trades are in compliance with the member rules.
The Disciplinary committee considered that the grounds of the relationship between A and B were not assessed in the case. The Committee considered that due to the circumstances in this case the manual trades reported by the member firm and the exchange trader on July 16th, 2007 and July 17th , 2007 were thus not such genuine trades with a relevant economic purposes that are required by the Norex Member Rule 4.6.1. By omitting to seek more information from the client and reporting the relevant trades, the member firm and the exchange trader had thus breached the rule.
The Committee stated further that there was no indication of the breaches being made in the purpose of influencing the price structure (Rule 4.6.2).
Decision
The Disciplinary Committee ruled that Kaupthing Bank Oyj and its exchange trader had on July 16th, 2007 and July 17th , 2007 breached the Norex Member Rules 4.6.1 and issued Kaupthing Bank Oyj and its exchange trader with a warning.
