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Part 1. Market manipulation and

abuse

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Market Abuse Mitigants

• Efficient law

• Efficient investigation

• Preventive sanctioning

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What is the relevance of MAD to combating market abuse?

• Enhance administrative liability conceptChallenges: Risk of being not efficient Increase cost of enforcement Double jeopardyBenefits: Less demanding standard of proof Non contradictory proceeding Dissuasive sanctioning

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What is the relevance of MAD to combating market abuse?

• Determine extent of powers for regulatorsdemand information from any persondemand any documentsrequire telephone records suspend tradingfreezing of assets

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Regulatory initiatives

• For enforcement, simplicity, clarity, convergence

• Based on analysing judicial decision (inconsistency, rejecting interpretation of regulator)

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Regulatory initiatives

• Administrative sanctions• Have an active role in prosecutor’s

investigations• Have a right to support the case in court • Have a right to bring private accusation

before the criminal court• Have a right to bring a lawsuit before civil

court

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Investigatory initiatives

• collecting evidence without assistance of defendant

• cooperation with the police before starting formal investigation

• using available investigatory powers and techniques

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• Create an investigative plan

• Figure out what are relevant evidences

• Analyze possible legal obstacles

• Consider cooperation with Police

First Steps

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• Establishing potential defendants and witnesses

• Plan of action

• Timetable for particular steps

Investigation Steps

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• Telephone interview?• Personal interview?• Emails?

Decide how to get the information

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• Information

• Intelligence

• Investigative assistance

• Investigation techniques

• Deter the wrongdoings

Investigatory initiatives –what cooperation with police gives us

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• They need information

• They need know-how

• They need success

Investigatory initiatives – why the police wants to cooperate

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Investigatory initiatives – investigatory powers and techniques

•Categorisation of witnesess or interviewees

•Hearing of witnesses or interviewees usually is not taped

•Interviewees are not informed about the subject of hearing in request

•Witnesses or interviewees being in relations are questioned on the same day

•Witnesses or interviewees are not allowed to contact anybody during the testimony

•Witnesses are asked to sign the minutes upon completion of each segment

•Cross interrogation of witnesses or interviewees

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Investigatory initiatives – investigatory powers and techniques

Hearing:

•On voluntary basis upon formal commencing of explanatory proceedings (informed any time by phone or letter, no assistance of attorney, no defendant at this stage, sanction for obstructing the proceedings– false statements, but appearance is not compulsory)

•Summoned upon formal commencing of administrative proceedings (informed 7 days before hearing, may be accompanied by attorney, defendant may be present during hearing, sanction for false statement, appearance is compulsory)

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How does it operate in Poland?

Collecting evidences

• On daily basis – we require information from supervised entities (investment firms, public companies, governmental agencies, stock exchange, national depository

• Upon the formal launching of explanatory procedure – it allows us to require information from anybody

• Upon formal launching of administrative procedure

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How does explanatory procedure operate?

Explanatory procedure – launched before starting litigation against person under the administrative code or criminal proceedings

• 6 months• conducted by authorised employees• authorised scope• evidences are passed to administrative or

prosecutor files

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How does the administrative regime operate?

• Administrative proceedings is carried out under the administrative code

• Administrative proceedings is more flexible, faster and less demanding in legal context than criminal proceedings

• Administrative proceedings is non contradictory

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How does the criminal regime operate?

• Criminal proceedings are carried out by public prosecutor

• Criminal proceedings are very strict, very formal in legal context

• Criminal proceedings are contradictory

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Legal principles in administrative proceedings

• Either intentional or unintentional wrongdoing is within the scope of liability

• Preponderance of evidence is sufficient for sanctioning

• The defendant has the right to assist in gathering evidences

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Sanctioning approach in administrative proceedings

• Individual and general deterrence

• Eliminate any financial benefit

• Be proportionate to the nature of infringement and dissuasive

• Maximum up to 10 times more than benefit

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Role of the PFSA in administrative proceedings

• Collecting evidences under the administrative code (transfer of evidences gathered in explanatory proceedings)

• Prepare the report for the Commission

• Recommendation of the fine

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Role of the PFSA in investigating criminal cases

• Collecting evidences (transfer of evidences gathered in explanatory procedure)

• Commencing the cooperation with the police

• Preparing the notification to the public prosecutor

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Legal principles in criminal proceedings

• Intentional wrondoing is within the scope of liability

• Presumption of innocence• Guilty beyond reasonable doubt• The accused person and PFSA as injured

person has the right to assist in gathering evidence

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Role of the PFSA in prosecution phase

• PFSA has the right of injured person (the prosecutor cannot reject our participation in the prosecution phase)

• Injured investors may take part in the prosecutor’s action as well

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Role of the PFSA in prosecution phase

• Assistance in prosecutor actions (testimony, searching the permises or private homes)

• Placing the motions regarding prosecution and responding on motions placed by defendant (appointing the expert)

• Appealing the prosecutor’s decision

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Role of the PFSA in the criminal court

• PFSA has the right of anciliary prosecutor in the trial (we participate in court trial apart from public prosecutor)

• PFSA may appear in court as public prosecutor

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Role of the PFSA in court trial

• Participation in mediation phase concerning the conviction (after our consent on this phase)

• consent on conditional remission of proceeding

• Placing and responding on the motions regarding prosecution

• Appealing the jury decision

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Role of PFSA in the civil court

PFSA may take the lawsuit against defendants

PFSA may support pending civil cases

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Sanctioning approach in criminal proceedings

• Individual and general prevention

• Damages - social consequences of the act

• Incomes of accused person

• Motivation, form of intent

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Public access to investigatory outcomes

• Providing information through the official announcement channel (without names before final decision)

• Having good relationship with media

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What is the relevance of MAD to combating market abuse

Expanding the scope of prohibition of manipulation

Sanctioning of dissemination of false or inaccurate information or rumours which are misleading or potentially misleading

Sanctioning of placing orders or transactions moving prices of financial instruments to abnormal or artificial levels which are misleading or potentially misleading

Sanctioning of orders or transactions which give misleading signals or potentially may give such signals as to supply, demand or price of financial instruments

Sanctioning of orders or transactions which employ fictitious devices or other forms of deception

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Legal challenges regarding market manipulation

• Legitimate reasons for trading

• Conformity with accepted market practices

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Types of market manipulations

False or misleading trasactions

- wash trades

- painting the tape

- improper matched orders

- placing orders without intention of executing

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Price positioning

- marking the close

- colluding in the after market of an IPO

-abusive squeeze

-creation of a floor in the price pattern

-excessive bid-ask spread

-trading on one market to improperly position the price of a financial instrument on a related market

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Transactions involving fictitious devices/deception

- cancelling ownership- dissemination of false or misleading market information

through media- pump and dump- trash and cash- opening a position and closing it immediately after its public

disclosure

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How does it work in Poland ?

Criminal regime – for transactions and orders Administrative regime – for dissemination of

false information excluding journalist (criminal liability)

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How does it work in Poland ?

Challenges

• Establishing who is behind relevant IP number• Journalists as market manipulators• Expert witness opinion as a key element

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Market manipulation mitigants

•Efficient surveillance system

•Efficient control system

•Price and volume restrictions

•Liquidity

•“Bull market”

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• Volatility

• Price Trend

• Volume Trend

• Unusual Volume

• Historical Performance

Alert System

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Shortfalls of Alert System

• Notification provided by insiders

• Public Information provided by the Company

• Recommendations provided by analyst