Stockholm Stock Exchange s Disciplinary Committee fines two listed companies and one member company

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1 Press release, December 5, 2005 Stockholm Stock Exchange s Disciplinary Committee fines two listed companies and one member company Fastighets AB Balder (under its former name of Enlight AB) and NOTE AB have been fined for breaches of the companies listing agreement with the Stockholm Stock Exchange. Balder failed to correctly disclose a forecast adjustment and NOTE issued price-sensitive information at a meeting with analysts. Fischer Partners Fondkommission AB has been fined for breaching the rules pertaining to the placement of orders by member companies. Balder/Enlight According to the regulations contained in the listing agreement between the Exchange and the listed companies, an adjustment of a previously published forecast must be disclosed through a press release sent to a number of newspapers and news agencies. The information about the adjustment must contain details about what the change consists of. In a year-end report published on January 31, 2005, Balder/Enlight disclosed that the company expected to report a profit and a positive cash flow for full-year In the printed annual report, which was available on the company s website in mid-april, it was stated that the company s ambition was to report a profit and a positive cash flow towards the end of The information presented in the annual report, which thus constituted a forecast adjustment, was not disclosed in the prescribed manner in the annual report but was instead first disclosed on April 22, 2005 in connection with publication of the interim report for the first quarter of However, in the firstquarter report, no information was provided about how the forecast had been changed in relation to the year-end report. The Disciplinary Committee found that the company had breached the regulations specified above and fined the company one annual fee, corresponding to SEK 192,000. NOTE It is stipulated in the listing agreement that any information that could significantly affect the valuation of a company s shares must be disclosed. Such disclosure is effected by presenting the information to a number of newspapers and news agencies. In its report on the first six months of 2005, NOTE stated that the company s long-term profitmargin objective was 6%, without specifying when the objective was to be achieved. At an analysts OMX Exchanges COPENHAGEN STOCKHOLM HELSINKI RIGA TALLINN VILNIUS STOCKHOLMSBÖRSEN AB STOCKHOLM STOCK EXCHANGE. SE Stockholm. SWEDEN Tel Fax Visiting Address: Tullvaktsvägen 15. Reg. No EFFICIENT SECURITIES TRANSACTIONS

2 meeting on September 7, 2005, the then president of the company stated, in response to a question, that it would be considered a failure if the margin objective was not achieved within six months. As a result of this information, the company s share price rose sharply during a period of substantial share turnover, which means that the information was of significance to the share s performance. The Disciplinary Committee found that NOTE had breached the regulations by not disclosing the statement of September 7 in the stipulated manner and fined the company two annual fees, corresponding to a total of SEK 384,000. Fischer Partners According to the regulations applying to Exchange Members, an order placed by a broker in the Exchange s trading system must reflect the current market value of the particular shares. When establishing the market value, such factors as changes in the share s price during the day in question and preceding days, the share s volatility, general changes in the pricing of equivalent instruments and other significant conditions that could arise must be taken into account. The member company has the same responsibility for orders placed by the member s customers via an Internet connection (automatic order brokering) as for orders brokered via a stockbroker. On a number of occasions during February, March, April and June, customers of Fischer placed automatically brokered orders in several companies in a manner that, in varying degrees, resulted in a breach of a reasonable interpretation of the said rules concerning the placing of orders. According to the Disciplinary Committee, these rules are of considerable importance to the confidence placed in the Exchange s operations, whereby obvious deviations from the rules must be judged seriously. Despite explicit reminders from the Exchange regarding the breaches, Fischer s efforts to comply with the rules and regulations have not led to satisfactory results. The Disciplinary Committee found that Fischer, as the company responsible for the order placement, had breached the regulations specified above and should therefore pay a fine of SEK 300,000. Disciplinary Committee The role of Stockholm Stock Exchange s Disciplinary Committee is to consider suspicions regarding whether Exchange Members, brokers or listed companies have breached the rules and regulations applying on the Exchange. If the Exchange suspects that a member, broker or listed company has acted in breach of the Exchange s rules and regulations, the matter is reported to the Disciplinary Committee. The Exchange investigates the suspicions and pursues the matter and the Disciplinary Committee issues a ruling regarding possible sanctions. The sanctions possible for listed companies are a warning, a fine or delisting. The fines that may be imposed range from one to 15 annual fees. The sanctions possible for Exchange Members are a warning, a fine or debarment, while brokers may be warned or have their brokerage license rescinded. The Disciplinary Committee s Chairman and Deputy Chairman must be lawyers with experience of serving as judges. At least two of the other members of the Committee must have in-depth insight into the workings of the securities market. Members: Supreme Court Justice Johan Munck (Chairman), Supreme Court Justice Marianne Lundius (Deputy Chairman), Madeleine Leijonhufvud (professor), Stefan Erneholm (company director) and Hans Mertzig (company director). Deputy Members: Hans Edenhammar (MBA), Claes Beyer (lawyer), Jack Junel (company director), Ragnar Boman (MBA) and Carl Johan Högbom (MBA). EFFICIENT SECURITIES TRANSACTIONS 2(9)

3 For more information, please contact Anders Ackebo, Senior Vice President Surveillance OMX Exchanges/Stockholm Stock Exchange Ulf Lindgren, Senior Legal Counsel, Stockholm Stock Exchange About OMX Exchanges: OMX Exchanges is a division of OMX. OMX Exchanges operates the stock exchanges in Copenhagen, Stockholm, Helsinki, Tallinn, Riga and Vilnius, as well as the central securities depositories in Estonia and Latvia. Via OMX Exchanges, customers are offered access to approximately 80 percent of the Nordic and Baltic securities market. EFFICIENT SECURITIES TRANSACTIONS 3(9)

4 STOCKHOLM STOCK EXCHANGE S RULING December 5, 2005 DISCIPLINARY COMMITTEE 2005:8 President of Stockholm Stock Exchange Fischer Partners Fondkommission AB Matter involving breach of membership agreement Fischer Partners Fondkommission AB is a member of the Stockholm Stock Exchange. On October 1, 2001, Fischer signed an agreement (Norex Membership Agreement) through which Fischer Partners undertook to comply with the rules and regulations applying at any time on the Stockholm Stock Exchange (Norex Member Rules, NMR) as long as the company remains a member of the Exchange. As shown in the enclosed appendix, the Stockholm Stock Exchange requested that the Disciplinary Committee announce a ruling regarding disciplinary action concerning Fischer Partners. Fischer Partners Fondkommission AB has issued a response concerning the matter. The Disciplinary Committee has familiarized itself with the documents pertaining to the matter. Neither party has requested an oral hearing. According to Item of NMR, the Stockholm Stock Exchange s Disciplinary Committee shall decide on sanctions if a member breaches the rules and regulations contained in NMR, Swedish law or other provisions that govern the members activities on the Exchange or that contravene generally acceptable practices in the securities market. In such cases, the Disciplinary Committee shall order the Member to pay a fine to the Stockholm Stock Exchange corresponding to at least SEK 100,000 and not more than SEK 10,000,000. When determining the size of the fine, the seriousness of the breach and other pertinent circumstances must be taken into account. If the violation is considered minor, the Disciplinary Committee may, according to Item , warn rather than fine the Member. The following is stipulated in NMR 4.6.1: EFFICIENT SECURITIES TRANSACTIONS 4(9)

5 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. Current market value for Trades means prices, which, upon a comprehensive assessment, reflect the current pricing of the Instrument in question. When assessing the current market value, consideration should be made to, among other things, the changes in the pricing of the Instrument during the relevant Exchange Day, the changes in the pricing of the Instrument on previous Exchange Days, the volatility of the Instrument and the general changes in the pricing of comparable Instruments and, where relevant other particular conditions related to the Trade. An Order will not reflect current market value if placed in the Order Book with a price that, in the event the Order is automatically matched, will manifestly result in a Trade that does not reflect the current market value. The validity of the Order must be taken into consideration when assessing the price of the Order. According to NMR and 4.9.4, the Member has the same responsibility for orders routed to the Exchange via Automatic Order Routing as for orders placed by the Member in any other manner and the Member must establish appropriate technical and administrative arrangements in order to ensure that orders routed via Automatic Order Routing do not violate the Norex Member Rules. The Stockholm Stock Exchange s complaint against Fischer Partners is based on the claim that, on several occasions and at least on February 28, March 31, April 29 and June 17, 2005, customers using the Automatic Order Routing system placed automatically routed orders in a number of companies in the trading system in a manner that the Exchange believes contravenes NMR The orders placed on February 28 and March 31 pertained to trading in LB Icon. At the end of the day, in connection with the call, Fischer Partners customer placed purchase orders in the trading system in the following manner. Number Total number Limit Latest price paid Change, % Feb March On April 29, just before the call, purchase orders were placed in the trading system, via Fischer Partners, for Diamyd, Karo Bio and BioInvent in the following manner. Company Number Total number Limit Latest price paid Change, % Diamyd Karo Bio BioInvent The orders placed on June 17 occurred during the call and pertained to the following companies. EFFICIENT SECURITIES TRANSACTIONS 5(9)

6 Company Number Total number Limit Latest price paid Change, % Castellum Fabege Hufvudstaden Kungsleden Klövern Wihlborgs The Stockholm Stock Exchange, with reference to the above summary of developments, has claimed that Fischer Partners has permitted, on several occasions, the placement of orders in the trading system in a manner that, to varying degrees, constituted a breach of the NMR rules concerning order placement. On a number of occasions, the Exchange has in various ways brought the breaches to the attention of Fischer Partners, which generally had nothing to object to the Exchange s judgments and claims. Despite this, the previous trading patterns recurred. Accordingly, Fischer Partners has not taken sufficient action to ensure that the breaches were not repeated. Fischer Partners has forwarded the following main arguments. It is obvious that the conditions for implementing and upholding compliance with the rules and regulations varies in terms of the Exchange member s own employees and Electronic Customers, which could be institutions located in another country. Fischer Partners does not actually argue against the fact that breaches of NMR occurred by it permitting Electronic Customers of Fischer Partners to place orders via Automatic Order Routing in a manner that does not comply with the manner permitted by an application of NMR However, Fischer Partners requests that the Disciplinary Committee, when determining Fischer Partners liability according to NMR, takes into account what is stated below regarding the actions that Fischer Partners has taken to avoid the type of incidents currently in question, and regarding the application of NMR Fischer Partners offers its customers, based on the conditions stipulated by the Stockholm Stock Exchange, the opportunity to trade electronically using various trading systems. The orders referred to in the Exchange s complaint were placed in the Orc Software and GL trading systems, which currently include deviation limits. The limits consist of a maximum percentage deviation from the most recently known price (meaning, primarily, the latest price paid and, secondarily, the most recently known purchase price) and a maximum deviation in terms of a fixed amount from the most recently known price. Starting in August 2005, these deviation limits have been modified to pertain to a deviation of 10% and SEK 0.10 from the most recently known price. The previous deviation limits were 15% and SEK 15 from the most recently known price with respect to Orc Software and 15% with respect to GL. EFFICIENT SECURITIES TRANSACTIONS 6(9)

7 In addition to the deviation limits, Orc Software and GL include a volume-limiting functionality, through which Fischer Partners can impose volume limits at the customer level. Even prior to the events in question, Fisher Partners, in cooperation with both Orc Software and GL, had been working to bring about more effective limits in the trading systems. Although GL previously had such functionality, Orc Software, prior to 2005, had no functionality for imposing limits in the trading system. On Fischer Partners initiative, Orc Software and Fischer Partners met during the autumn of 2004, which resulted in Orc Software introducing into its trading systems a functionality that meant that as of the end of February 2005 Fischer Partners, and all the other Members who provide the Orc Software trading system to their customers, were able to restrict volume per market per day, and individual orders, even in cases other than when validation is possible over a customer s custodian account, which includes those customers for whom the limits would probably be most important, namely cash customers, who are normally large institutional investors. It should be noted that Orc Software is one of the trading systems used most frequently by Exchange Members offering electronic trading. Around the beginning of 2005, Fischer Partners also requested the possibility to implement deviation limits in GL s trading systems, which had no such limits at all, something to which Fischer Partners had called attention. In February 2005, a deviation limit of 15% from the most recently known price was implemented. When setting the limit at 15%, Fischer Partners made a comparison with the Finnish Exchange, which unlike the Stockholm Stock Exchange had such a limit as a standard requirement. In view of the observation made by the Stockholm Stock Exchange during the spring of 2005, the limits included in the trading systems were checked and reviewed, whereby certain shortcomings in GL s limiting system were rectified. After this, GL updated its trading systems, whereby a number of limits were accidentally deactivated. This is the reason why orders exceeding the deviation limits were admitted on June 17, As a result of the incidents arising in this matter, Fischer Partners ensured during August 2005 that trading via GL and Orc Software became subject to the deviation limits described above. Fischer Partners has also contacted GL and Orc Software requesting that they introduce a more sophisticated limiting system. Fischer Partners has initiated far-reaching system-development discussions with GL and Orc Software and has submitted the following requests: That the deviation limits be adapted to the current status of the market (that is, opening trading, ongoing trading and closing trading) and that the limits be set according to percentages, number of tick sizes and a fixed amount. Using this type of functionality, Fischer Partners believes that it will be possible, to a greater extent than today, to prevent the type of trading that is not compatible with EFFICIENT SECURITIES TRANSACTIONS 7(9)

8 NMR Although neither GL nor Orc Software has been able to announce a delivery date, there are strong indications that the requested functionality will be available during the first quarter of 2006 with respect to Orc Software and during the second quarter of 2006 with respect to GL. In NMR 4.6.1, second paragraph, it is stated that the Exchange, not the Member, is to definitively set the current market value. In addition, the first sentence of the third paragraph, consists of somewhat circular reasoning. The Stockholm Stock Exchange has confirmed to Fischer Partners that this rule is difficult to interpret and that the third paragraph, in particular, was lacking in clarity. As early as in connection with the trading in LB Icon, Fischer Partners requested guidance from the Exchange s market surveillance department regarding how we should understand the manner in which the Exchange sets the current market value. Additional guidance from the Exchange has also been requested thereafter, not least in view of the events in question. During a meeting between the Exchange and Fischer Partners on June 23, 2005, Fischer Partners also requested guidance. In Fischer Partners opinion, the Exchange has neither generally nor in any specific case stated concretely what is meant by current market value. As stated above, Fischer Partners is not questioning whether a breach of NRM has occurred. However, Fischer Partners believes that the circumstances are such that a sanction should not be imposed. The fundamental reasons for this are as follows. Fischer Partners meets the requirements regarding the technical and administrative actions stipulated in NMR In addition, NMR is undoubtedly difficult to interpret and lacking in clarity. Many Electronic Customers are foreign institutions and, for this reason, the rules and regulations must be both clear-cut and distinct to ensure that an Exchange Member is able to effectively explain the meaning and application of the rules and regulations to his customers. In the Exchange s English version of NMR 4.6.1, the third paragraph is even more ambiguous than in the Swedish version. The final sentence is as follows: The validity of the Order must be taken into consideration when assessing the price of the Order. This is a translation of Orderns giltighetstid måste beaktas vid fastställande av Orderns kurs. Although the Swedish sentence is not particularly clear, the English version must be totally incomprehensible for an English-speaking reader. The word giltighetstid should reasonably be equivalent to period of validity or something similar. In addition, even before the events in question, Fischer Partners actively worked to bring about measures to suppress and counteract inappropriate trading practices. If Fischer Partners had maintained a passive posture, a sanction could possibly have been justified. Instead, in the manner described above and in previous correspondence with the Stockholm Stock Exchange, Fischer Partners has been extremely active, through, among other actions, structural measures implemented in the trading systems in order to counteract inappropriate trading practices. Fischer Partners has also demonstrated that it is actively continuing with such work. EFFICIENT SECURITIES TRANSACTIONS 8(9)

9 The Disciplinary Committee rules that it has been clearly established that Fischer Partners, via the aforementioned Automatic Order Routings, breached what must be a reasonable interpretation of NMR As expressly stipulated in NMR, Fischer Partners is responsible for the matter in question, even for orders routed to the Exchange via Automatic Order Routing. Since the rules concerned are of major importance to efforts to uphold public confidence in the Exchange s operations, significant deviation from them must be adjudged seriously. Although it is apparent from the investigation into the matter that Fischer Partners actually made certain efforts to comply with the rules and regulations, these efforts have obviously not led to satisfactory results. What is said here applies particularly in view of the fact that on a number of occasions the Exchange has called Fischer Partners attention to the incontestable fact that orders routed to the Exchange via Automatic Order Routing occurred within the company in a manner that breached the Exchange Rules. The criticized deviations have, in part, been extremely remarkable. Accordingly, Fischer Partners must be subjected to a disciplinary sanction for its actions. The Disciplinary Committee orders Fischer Partners to pay a fine of SEK 300,000. On behalf of the Disciplinary Committee, Johan Munck Supreme Court Justice Johan Munck (Chairman), Supreme Court Justice Marianne Lundius (Deputy Chairman), Madeleine Leijonhufvud (professor), Hans Mertzig (company director), Hans Edenhammar (former Head of Market Surveillance) and Stefan Erneholm (company director) participated in the deliberations. Unanimous. EFFICIENT SECURITIES TRANSACTIONS 9(9)