LEGAL ASPECTS OF FINANCE

Lecture 1
Introduction
Case 1
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 and Accounting: pricing of derivatives, investor

behavior, market efficiency, financial instruments, IFRS etc.
• Methods of economics and business economics

Communication sciences (e.g. representations of finance in

media), sociology etc.

(Here:) the (combined) legal view: function of regulation in

market context
• 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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Main Objects of Regulation in Securities
Markets Law 1: Disclosure Duties
Information of the issuer (financial
Duties in conjunction with position, future prospects etc) and Especially the Obligation of the
of the security to facilitate well-
the issue of securities founded investment decisions prospectus duty 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

Ban on market abuse

Rules of Insider regulation: ban
on trading on the basis
trading (mostly of non-public price-
sensitive information
self-regulation Market manipulation:
affecting market prices
of the Stock in an inappropriate way
e.g. by operations in
Exchange) the company’s own
shares

Regulation of
Public bids securities
and mandatory intermediaries
(brokers)
redemption of E.g. codes of
minority conduct,
shares protection of
clients

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Overview of Course Topics (Slide Sets)

Slide Set 1 ●
Regulative Views on the Markets

Slide Set 2 ●
The Role of Regulation on the Markets

Slide Set 3 Markets, Parties and Trading

●

The Stock Exchange and Other Public Trading in Securities

●

The Single European Financial Market

Slide Set 4
●

●
Free Movements and Basics of Regulation
●
The Supervisory Bodies
Overview of Course Topics, cont.

●
Investment Firms
Slide Set 5 ●

●
Legal Standards on Customer Relations
Other Regulation of Investments Firms

Slide Sets 6 ●

●
Market Abuse:
Insider Provisions: General Framework
Market (Price) Distortion
and 7
●

●
Own Shares and Securities Markets

Civil Law Liabilities on Securities

Slide Set 8
●

Markets: Contracts, Damages

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Overview of Course Topics, cont.

Slide Sets 9 ●

●
The Disclosure Duties:
The Duties in Issues of Securities (Especially Prospectuses)

and 9a Finnish Insider and Disclosure Duty Case

●

●
Regular and Ongoing Disclosure Duties
Slide Set 10 ●

●
IFRS
Pro Forma Information

●
Ongoing Disclosure Duties
Slide Set 11 ●
Disclosure Duties, Insider Information and
Business Secrets

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Overview of Course Topics, cont.

Slide ●

●
Information Crimes
Information as Property
Set 12 ●
More Disclosure Duties

Slide ●
Tender Offers (Public Bids)
Mandatory Bids
Set 13
●

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Introduction to the Course

Our
Approach

Regulative
Views on the
Markets
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Search of Regulation Material

• Links to search of material issued by (Finnish) Financial Supervison

Authority, Nasdaq OMX (Helsinki Stock Exchange): see homepage
of the course (https://
noppa.aalto.fi/noppa/kurssi/32e11100/course_material )
• Links to Finnish legislation translations :
http://www.finlex.fi/en/laki/kaannokset/haku/?
search%5Btype%5D=pika&search%5Bpika%5D=Act+on+Investme
nt+Firms&submit=Search

• Links to EU legislation: http://

eur-lex.europa.eu/en/tools/sitemap.htm (by indicated search keys,
e.g. document number)

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Case 1: Financial Crisis of 2008

Task:
1. Origin, Development and Escalation of the
Crisis
2. Possible Causes of the Crisis
3. Role of Regulation of the Market and Its
Possibilities to Prevent a Crisis
Topics and Issues

The Role of ”Prudential Regulation

Regulation
on the
Supervisio of Financial
Markets n” Products
●
Markets, Trading ●
Marketing
and Actors ●
Solvency Provisions etc.
●
… and ●
Monitoring
Supervision of of Financial Complicated
them - is it Institutions and Risky
needed? Products

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Regulation (if any)

• EU regulation:
– Directive 2013/36/EU of the European Parliament and of the
Council of 26 June 2013 on access to the activity of credit
institutions and the prudential supervision of credit institutions
and investment firms, amending Directive 2002/87/EC and
repealing Directives 2006/48/EC and 2006/49/EC Text with EEA
relevance ( http://
eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32013L0036:
EN:NOT
)
• Solvency regulation of credit institutions and investment firms
– DIRECTIVE 2004/39/EC OF THE EUROPEAN PARLIAMENT AND OF THE
COUNCIL of 21 April 2004
• on markets in financial instruments amending Council Directives 85/611/EEC
and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the
Council and repealing Council Directive 93/22/EEC (Markets in Financial
Instruments Directive / MiFID
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Regulation (cont.)

• Directive 2001/34/EC of the European Parliament

and of the Council of 28 May 2001
– on the admission of securities to official stock exchange
listing and on information to be published on those
securities
• Directive 2003/71/EC of the European Parliament
and of the Council of 4 November 2003
• on the prospectus to be published when securities are offered to the
public or admitted to trading and amending Directive
2001/34/EC( ”Prospectus directive”)

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Regulation (cont.)

• Commission Regulation (EC) No 809/2004 of 29 April

2004 implementing Directive 2003/71/EC of the
European Parliament and of the Council as regards
– information contained in prospectuses as well as the format,
incorporation by reference and publication of such prospectuses
and dissemination of advertisements
– ”Europassport” for issuers
• CESR’s (see slide set 4: 2 – 3) recommendations for the
consistent implementation of the European
Commission’s Regulation on Prospectuses N:o
809/2004 (CESR /05-054b)

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Regulation (cont.)

• National regulation :
– Securities Markets Act (14.12.2012 / 746;
http://www.finlex.fi/fi/laki/kaannokset/2012/en20120746.pdf )
– Repeals: Former SMA (495/1989)
– Ch. 3 – 5 on disclosure duties
– Marketing and issuance of securities, duty of disclosure (SMA
ch. 1 sect. 2 – 4)
– Act on Investment Services (14.12.2012 / 747; only in Finnish,
so use:)
– Repeals: Act on Investment Service Companies (922/2007)
– FSA standard 5.2a on Securities offerings and listing

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Other Material and Further Reading

• Wikipedia Article: Wall Street and the Financial

Crisis: Anatomy of a Financial Collapse (
http://en.wikipedia.org/wiki/Wall_Street_and_the_Fin
ancial_Crisis:_Anatomy_of_a_Financial_Collapse#In
vestment_Bank_Abuses:_Case_Study_of_Goldman
_Sachs_and_Deutsche_Bank
)
• ZUFFEREY, J.-B.: Regulation of Trading Systems on
Financial Markets (1997). ISBN 90-411-0679-0
• Please make use of your knowledge of Finance