Insider trading law comes into existence

Russian President Dmitry Medvedev has new insider trading laws clarifying concepts as insider information and market manipulation.

The Insider Information Law defines “insider information” as, in effect, any accurate non-public information of a particular issuer, asset management company or commodities producer, or information about a particular financial instrument or commodity, which may significantly affect prices. In general it requires that such information be publicly disclosed, but allows some scope for not doing so for limited periods in circumstances such as the need to preserve confidentiality during negotiations conducted as part of measures to prevent bankruptcy.

The new law also requires issuers and asset management companies, as well as certain professional participants in the securities market, and financial organizations, to maintain lists of people qualifying as insiders, and to submit these lists to the Russian financial market regulator at its request.

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Arkady Mayfat, board member at the Private Law legal firm believes that law brings about a degree of contradiction building up lists of possible insiders.

“From one side the list of insiders will support and protect the laws, appealing to the law “on non-disclosure of trade secrets” and on the other it is meaningless for potential investors who are looking to acquire relevant information by any means and through all possible channels.”

He believes the key issue is to control deals signed after the disclosure of secret information.

“The insider can be determined as any person who discloses secret information. In this case building of the list of insiders is a question of minor importance. However, the attention has to be paid to the deals and contracts concluded with the use of inside information.”

Sergei Izmailov a lawyer at the Center for Legal Expertise suggests that the current law can be used against bona fide market participants.

“The Draft law on unfair practices in the financial markets is more likely to protect bona fide participants in civil relations. However, the law depending on its statements and legal issues can have an ambiguous impact on market participants provoking unfair competition, disclosure of secret information and spur corruption.”

Tatiana Lvova, Head of Corporate Lawyers, Intelis legal support, says that insider trading is an offence in most financial centers – but until now, the law has never passed the first hearing in Russia.

“The abuses associated with the use of insider information, are not frequently seen in Russia as in the West. This is due, primarily, to a small number of public companies listed on the stock market the Russia. Mainly these types of companies and their shareholders are major victims of information swindlers.”

The law will come into effect six months after publication. It introduces criminal penalties for willful misuse of insider information.

Lvova suggests using additional measures to prevent disclosure and illegal distribution of the secret information.

"In our view, the most effective measure to prevent the indeterminate use of insider information, along with the standard criminal penalties, payment of substantial fines and criminal responsibility, should be an improvement in corporate governance transparency, and concurrent access to information that can be used as an insider.”

The law does not impact on the broadcasting or publications of information that might be considered insider information, unless there are benefits received by the media outlet or if the Federal Financial Markets Service was not provided with information about the source of false information.