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Finland

On January 1 2002 several amendments to the Securities Market Act (the SMA) and a number of related securities laws became effective. The amendments relate mainly to the definition of securities under Finnish law and introduce new provisions concerning other forms of public trading as well as alternative professional trading places to be established by authorized stock exchanges, investment firms and credit institutions. In addition, the amendments introduce provisions intended to increase the level of internal supervision conducted by market participants involved in the Finnish securities markets.

The Finnish government anticipates that the amendments to the SMA will make the concept of securities under Finnish law more flexible. The new definition of securities contained in the SMA is not exhaustive and, therefore, allows a variety of new types of freely traded investment instruments that are based on agreements and meet the general requirements of securities to be considered by the relevant authorities to constitute securities for purposes of Finnish law. The amended provisions of the SMA generally define securities as instruments that are freely transferable and have been or will be placed in general circulation together with a number of identical instruments. Under the former provisions of the SMA, the concept of securities was narrower in scope as the types of instruments that qualified as securities were specifically and exhaustively listed in the relevant provision of the SMA. Furthermore, securities issued by private limited companies were expressly excluded from the scope of the SMA.

According to the bill, the intention of the Finnish government has been to make room for new investment instruments to be introduced to the Finnish market as well as to increase the level of competition within the securities business in Finland. The intention of the Finnish government is also to increase the level of protection of investors by introducing regulated alternative trading places for non-listed securities. The amendments made to the provisions of the SMA enable new types of non-listed investment instruments that are, under the amended provisions, regarded as securities to be offered to the public and publicly traded.

Following the amendments to the SMA, public limited companies issuing securities can enjoy a more level playing field, as private limited companies will now also be subject to a number of disclosure requirements under the SMA, including the requirement to prepare and publish a prospectus when securities are issued to the public in Finland. There is, however, a transitional period of six months ending on June 30 2002 for the benefit of private limited companies in relation to the above requirement to prepare and publish a prospectus. As a result of the amendments to the SMA and related securities laws, the restrictions on public trading in securities issued by private companies have been relaxed. While securities issued by private limited companies still cannot be listed on a stock exchange, the amendments introduce a new method of trading by means of professionally arranged and administered trading places available to the public.

The new alternative professional trading places are managed and administered by either licensed stock exchanges or licensed Finnish or foreign investment firms or credit institutions and will enable the offering to the public of securities issued by private limited companies. It is also possible to trade in securities issued by foreign issuers on an alternative trading place. According to the government bill, the above amendments introducing alternative professionally managed trading places will, along with increased competition, provide small and medium-sized enterprises with additional means to raise funding.

A professional alternative trading place must have rules governing, among other things: the introduction of securities on such alternative trading places; the rules and hours of trading; trading permits and licences of securities intermediaries and brokers as well as details of those persons responsible for the management and supervision of trading on such trading places. Should the trading on a professionally managed alternative trading place constitute public trading under the amended provisions of the SMA, the rules of the trading place are subject to the approval of the Ministry of Finance. Otherwise, the rules must, prior to the commencement of trading on the respective trading place, be filed with the Financial Supervision Authority for review. In either case, the rules must provide for sufficient protection to investors participating in trading. In addition to the rules of the trading place, the general code of conduct and disclosure rules of the SMA would be applicable and require, among other things, that sufficient information be provided to potential investors.

In addition to the amended definition of securities contained in the SMA, the definition of an investment object contained in the Act in Investment Firms (the IFA) has been amended. According to the revised definition, all derivative contracts, whether standardized or not, are considered investment objects and, therefore, fall under the scope of the IFA whereby the provision of services relating to all types of derivative contracts constitutes the provision of investment services subject to licence requirements.

Dimitrios Himonas

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