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Legal Aspects of Finance
Slide Set 1
Regulative Views on the Markets
Matti Rudanko
The Views of the Regulator (and
Supervisor) of the Markets
The views are taken from regulative provisions, either from
European or national legislation, which are effectively
harmonized
“Financial Services policy should deliver stable, secure and
efficient financial markets and ensure coherence and
consistency between the different policy areas, such as
banking, insurance, securities and investment funds, financial
markets infrastructure, retail financial services and payment
systems.”
(http://ec.europa.eu/internal_market/finances/index_en.htm )
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Views on the Markets
Economics: markets in the context of political economy
Finance: pricing of derivatives, investor behavior, market
efficiency, financial instruments etc.
• Methods of economics and business economics
Communication sciences, sociology etc.
(Here:) the legal view: regulation of the markets
• Classical question: why regulate the markets?
• Karl Marx – Adam Smith (the visible / invisible hand) – the modern
competition law
• The special characteristics and role of financial markets may increase
the need of regulation
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The Special Characteristics and Role of
Financial Markets
Purpose: (like that of other markets): transfer resources
(funding) to where they are needed
• Macroeconomic view: blood circulation of national economy
• Requires efficiency ensured also by means of regulation
• Another regulatory objective: investor protection
For companies, markets are a means of getting capital – for
investors a means of getting profit
• Primary markets: collecting capital to companies
• Secondary markets: profit through market value increase (cf. dividends)
• Cf. Investment markets / Markets of corporate control
Disorders affect all markets – and political economy
• They easily escalate on global markets
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Public trade in securities
Collective
anonyme
automatic (electronic)
• the book-entry system: securities exist only as electronic
book-entries (both shares and bonds)
• two-fold account system:
- the mass deposit accounts: total amount of shares per each class of
shares
- personal book-entry accounts relating to investors: entries of
transfers etc. registrations
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Main Objects of Regulation in
Securities Markets Law 1: Disclosure
Duties
Disclosure duties on securities markets
• Duties in conjunction with the issue of securities
- Information of the issuer (financial position, future prospects etc) and of the security
to facilitate well-founded investment decisions
- Especially the prospectus duty
- Obligation of the issuer
• Regular (interim and annual accounts and account statements) and
ongoing disclosure duties (any news having a material impact on the
value of the security)
- Obligation of the issuer
• Flagging duties (share ownership portion reaching / exceeding / falling
below defined thresholds)
- Obligation of a shareholder
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Other Main Sets of Securities Market
Provisions
Rules of trading (mostly self-regulation of the Stock Exchange)
Ban on market abuse
• Insider regulation: ban on trading on the basis of non-public pricesensitive information
• Market manipulation: affecting market prices in an inappropriate way
e.g. by operations in the company’s own shares
Public bids and mandatory redemption of minority shares
Regulation of securities intermediaries (brokers)
• E.g. codes of conduct, protection of clients
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Securities markets regulation 1
Regulation structure
Official norms
and
self-regulation
Legal provisions
Regulations
Ministerial decrees
etc.
Regulations and
guidelines of the
Financial supervision Authority
Rules and
regulations
issued by the
Stock Exchange etc.
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Rulings given by authorities
Norm giving power delegated in law
more detailed norms specifying those in law
main norm giving authorities pertaining to
securities markets
• Ministry of Finance
• Financial Supervision Authority: guidelines and
regulations
• Consumer Ombudsman office
• The Finnish Accounting Standards Board
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Self Regulation
Norms concretizing the general norms in law
binding in general only on members of the self-regulatory body
if not issued under normative authority delegated in law to the
self-regulatory body
creating practical standards stricter than those in law
e.g. the rules and guidelines of the Stock Exchange and the
Association of Securities Dealers
the Ethical Rules of the Stock Exchange
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Regulations of the Association of
Securities Dealers
General contract terms of investment service
General terms and conditions of orders to purchase and sell
securities
general conditions of a lending agreement
• affirmed by the Finacial Supervision Authority on the basis of a legal
provision: chapter 4, section 5 a of the SMA (a lending contract),
delivery of securities with repurchase terms (a repurchase contract).
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