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Market behaviour rules

Last spring the Swiss Federal Banking Commission (SFBC) published a new circular dated March 19 2008 (SFBC circular) that establishes rules on oversight regarding the market behaviour of regulated market participants when carrying out securities transactions. The circular gives guidelines on how to avoid market abuse and contains examples of acceptable market practice. The SFBC circular came into force on May 1 2008.

The rules established in the SFBC circular are based on the precept of proper business conduct as established in the Swiss Stock Exchange Act (SESTA). They cover in particular the use of confidential price-sensitive information, the true bid and ask conditions, the dissemination of price-sensitive information and the firm establishment of the principle of good faith, as well as the organisational obligations of securities dealers.

Considering the financial environment, the SFBC recently reminded market participants to strictly comply with the market behaviour rules provided in the SFBC circular and made it clear that it will prosecute any abusive market behaviours.

By way of the reminder, the SFBC concretised the SFBC circular and pointed out that naked short sales, whether on behalf of Nostro or of clients, is a prohibited market practice and incompatible with the SFBC circular, in particular if such sales are used to distort or manipulate the market. In addition, the SFBC stressed that it is the banks' obligation to ensure that, in respect of securities sales made on behalf of clients, the clients are able to deliver on the settlement date.

Furthermore, the SFBC emphasised that the dissemination of misleading rumours and the spreading of untrue information constitutes abusive and unacceptable market practice.

Arlette Pfister

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