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Amendments have been made to the Helsinki Exchanges regulations to allow block trading. These amendments took effect on February 25 2002. The reasons for the change include the desire to minimize the possibility of the manipulation of stock trading prices and to clarify the existing trading rules on the matter. It is hoped that the clarity these changes bring will encourage more block trading activity.

Before the new regulation, block trade transactions carried out over the Helsinki Exchanges usually involved shares in Nokia, and had to be executed at the prevailing quotation. Customary practice in block trading transactions was that the parties agreed on a share price, which may deviate substantially from the quotation, but then they simply waited for the share price to be quoted at the agreed level before executing the transaction. As not conducting the transaction over the Exchange would have resulted in the transaction attracting the 1.6% Finnish transfer tax, there have been several cases where parties allegedly have manipulated the share price in order for them to conclude the transaction.

The parties to a block trade transaction are now able to freely agree on the purchase price, since there are no limitations on the permissible deviation from the prevailing quotation price. Therefore, by enabling the parties to determine how much is block traded and at what price, but still providing them with the tax relief and other procedural benefits of conducting a transaction over the Helsinki Exchanges, it is hoped that more activity, such as the acquisition of shares in a listed company, or other corporate restructuring transactions, is stimulated.

The new regulation specifies that, in order for a transaction to qualify as a block trade, one of the following two thresholds must be satisfied:

  • at least 2% of shares in the same class are subject to trade and the value of the transaction is at least euro 1 million; or
  • the value of the transaction is at least euro 10 million.

In its comments, the Finnish Financial Supervision Authority deemed these thresholds for a block trade to be too low, and would have suggested the imposition of higher thresholds, which would make the occurrence of block trading more of an exception than a rule. The Ministry of Finance, however, approved the new regulation without amendments, stating that most of the transactions over the Helsinki Exchanges fall below the above block trade thresholds.

According to the new regulation, the block trades are recorded in the exchange system by using a special block trade identifier. The parties to a block trade, the price and the number of shares traded have to be disclosed immediately after the execution of the transaction. It is envisaged that access to such information will also benefit private investors.

The new regulation specifies that block trading may be executed both during continuous trading, as well as in after-market trading. Block trades will not have any effect on the official closing price or the calculation of indices. The Helsinki Exchanges are also considering the implementation of amendments to the method of calculating the official closing price.

The new provisions on block trading for the Helsinki Exchanges are comparable with the regulations that are customary in other exchanges, hence they improve the international standing of the Helsinki Exchanges. Time will tell whether the new amendments will stimulate more block trading and deter investors from manipulating prices, however the new certainty about the rules is definitely a step in the right direction.

Dimitrios Himonas

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