Topic Market manipulation, Insider monitoring Market analyses
Article from the Annual Report 2016 of the BaFin
In the year under review, BaFin analysed 706 cases (previous year: 570) for indications of market manipulation and insider trading. This brought the number of analyses back to the 2014 level (721; see Figure 9 "Market analyses").
Figure 9 Market analyses
Market analyses
In 149 cases (previous year: 125), BaFin found initial indications of market abuse. 103 of these cases (previous year: 79) related to market manipulation and 46 (previous year: 46) to insider trading.
Most of the analyses were conducted in response to suspicious transaction reports. Since July 2016, these cases have been governed by the new provisions of the MAR. Market participants brokering or executing transactions on a commercial basis have since then been required to investigate trading activities with the aid of effective systems. They are required to scrutinise transactions for irregularities and to report any orders or transactions they have identified as suspicious. The same rules apply also to market operators as well as investment firms operating a trading venue. In addition, the legal definition of market abuse has been expanded. They include, for example, attempted market manipulation or insider trading performed by cancelling exchange orders. These amendments were the reason for a sharp increase in suspicious transaction reports to a total of 1,274 in the year under review (previous year: 547). They related to 765 different financial instruments (previous year: 331).
In the year under review, BaFin compiled 16 experts' reports on market abuse behaviour for public prosecutors' offices and courts. Where these proceedings related to cases of market manipulation, the reports were in most cases requested to establish whether manipulative acts had an effect on the market price of a financial instrument. One case related to insider trading, where the BaFin expert calculated the special advantage the insider had attained through their action.
In addition, BaFin published 7 consumer warnings on its website in order to alert private market participants of concerted manipulation attempts, such as phone calls or spam e-mails.
Market manipulation analyses
81 of the total of 103 positive market manipulation analyses dealt with sham activities such as wash sales and pre-arranged trades (previous year: 42; see Figure 10 "Subject matter of positive market manipulation analyses"). In 15 cases, there were indications of information-based manipulation, such as incorrect, misleading or withheld information as well as manipulation in the form of scalping (previous year: 32). Almost all other cases were based on manipulation of order situations or reference prices.
Broken down by stock exchange segment, 68% of the alleged cases of market manipulation were identified on the regulated unofficial market (Freiverkehr). The share attributable to this segment was thus up slightly on the previous year (59%). By contrast, the share of analyses relating to the regulated market declined to 32% (previous year: 41%).
Figure 10 Subject matter of positive market manipulation analyses
Subject matter of positive market manipulation analyses
Insider trading analyses
As for alleged insider trading, the number of positive analyses conducted in 2016 was the same as in the previous year, at 46 cases. The main focus – 17 cases – was on issues relating to companies' earnings figures (previous year: 12; see Figure 11 "Subject matter of positive insider trading analyses"). 10 cases were recorded in connection with mergers and acquisitions (previous year: 13). The remaining cases are evenly divided among different categories of inside information. As in 2015, most alleged insider trading took place on the regulated market (80%; previous year: 78%). The remaining cases (20%; previous year: 22%) related to the regulated unofficial market.
Figure 11 Subject matter of positive insider trading analyses
Subject matter of positive insider trading analyses
Recommendations by financial analysts
BaFin's market analyses also cover recommendations issued by financial analysts, which have been subject to a new basis in law since the middle of 2016. Articles 20 and 21 of the MAR and the accompanying Delegated Regulation of 9 March 2016 have since then replaced section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz), old version, and the German Financial Analysis Regulation (Finanzanalyseverordnung). In substance, they largely correspond to the previous legal situation. This means that information has to be presented objectively and parties producing or disseminating it must disclose any conflicts of interest. However, the MAR does not use the term "financial analysis" and instead refers to "investment recommendations or other information recommending or suggesting an investment strategy". These recommendations do not take the individual investor's investment objectives into account and must therefore not be confused with the individual recommendations that investment advisers issue during individual investment advice.
At the end of 2016, 431 credit and financial institutions that provide their customers with in-house recommendations or recommendations developed by third parties in accordance with the MAR were supervised by BaFin (previous year: 383). The increase is mainly attributable to a larger number of savings banks and cooperative banks passing on recommendations within the meaning of the MAR, which they obtained from their respective top institutions. In addition, BaFin was notified of 213 independent natural or legal persons or associations of individuals that produced or disseminated recommendations within the meaning of the MAR (previous year: 198).