On 11 January 2012, the Netherlands Authority for the Financial Markets (AFM) imposed an administrative fine of €240,000 on BRSG Advisors SA (BRSG). BRSG is an arbitrageur and has its registered office in Geneva, Switzerland. In the opinion of the AFM, in December 2009 BSRG violated the ban on market manipulation provided for in Article 5:58(1) at a of the Financial Supervision Act, in five auctions where trade took place in claims that entitled to new shares in ING Groep N.V. (ING).
ING performed a so-called claims emission in December 2009. This meant that current shareholders acquired one right (claim) per share to obtain new shares in ING in a specific exchange ratio. The registration period ran from 30 November to 15 December 2009. During this period, the claims could be traded at NYSE Euronext and arbitrage between the ING shares and the claims was possible.
During its investigation into the trade in the claims and the ING shares in this period, the AFM established that BRSG performed simultaneous purchase orders in claims and sell orders in ING shares. BRSG did this in such a proportion that, following exchange for ING shares, the purchased shares equalled the number of ING shares sold. BRSG consequently performed arbitrage between ING shares and the claims.
In addition, proper to the performance of these arbitrage transaction, BRSG placed significant best-price purchase orders for the claims that it subsequently cancelled within five seconds prior to the opening or closing auction. The result was that at that time more favourable arbitrage possibilities between the claims and the shares arose. A positive result was achieved with the performance of its arbitrage transactions during the auctions that followed.
The best-price purchase orders that were cancelled only seconds prior the auctions gave a misleading image of the demand for the claims at that time. BRSG has failed, in the opinion of the AFM, to demonstrate sufficiently that it had legitimate reasons for placing and cancelling these orders, as referred to in Article 5:58(1) at a of the Wft. BRSG also failed to demonstrate that its conduct is in line with common trading practice at NYSE Euronext. In view of the size of the orders and the time of their cancellation, the AFM is of the opinion that this could have sent a misleading signal as regards the demand for or price of the claims. BRSG's trading conduct can therefore be designated as market manipulation. Such violations of the ban on market manipulation are harmful to the confidence of market parties in the financial markets.
When determining the amount of the fine, the AFM took into account the seriousness and duration of the violation, culpability and financial capacity of BSRG.
The AFM notes that the Penalty Scheme in Financial Legislation (Amendment) Act and the Administrative Fines in Financial Legislation Decree (new fines legislation) entered into effect on 1 August 2009. The Dutch legislator has significantly increased the fine amounts for violation of, inter alia, Article 5:58(1), part a, of the Wft, in the fines legislation. The new fines legislation applies because DFD's violations occurred after 1 August 2009.
Interested parties can submit the AFM's opinion contained in the decision to the courts for review.
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