The Helsinki Stock Exchange (HEX) has issued a new rule on price stabilization. The rule is the first regulatory act of its kind in Finland and it entered into force on September 20 1999. Previously the concept of price stabilization had been somewhat unregulated in the Finnish securities market.

Prior to the new rule stabilizing transactions were not flatly prohibited but instead were permissible in certain ill-defined circumstances. Under the provisions of the Finnish Criminal Code, applicable to publicly traded securities, stabilizing securities market transactions were allowed provided they were publicly disclosed and not undertaken with the intent to mislead the market place or to seek unjust benefit in view of future transactions. Market regulators or public prosecutors never took the initiative within this old legal framework to enforce this principle.

The new rule sets up a 'safe harbour' for market participants involved in stabilizing transactions in relation to Initial Public Offerings (IPOs) or other securities offerings by allowing price stabilization on HEX, provided naturally that acting parties follow the provisions of the rule. The rule states that the only party permitted to undertake or initiate stabilizing acts is the underwriter(s) to the offering. Actual stabilizing market transactions may also be conducted by the dealer group engaged by the underwriter.

Moreover, the underwriter's right to stabilize the market price of the security in question must be disclosed in the prospectus or listing particulars. The rule provides recommended language for such disclosure in offering documents.

Price stabilization may take place only during the time frame described in the prospectus and may never exceed a maximum of 45 days from the commencement of the public trading of the security on HEX. Furthermore, the underwriter may purchase only such amount of the target securities (through stabilizing transactions) as initially disclosed in the offering document. If the underwriter has stopped its stabilizing activities on HEX during the permissible period it may not recommence these transactions again.

Once the stabilization period has terminated the underwriter must publicly disclose and define the target security, highest, lowest and the medium price of the security during the permissible stabilization period together with the amount of securities purchased and sold. The Hex and The Finnish Financial Supervision as regulatory body have the right to request and receive information on stabilizing transactions at any time.

For further information on this topic please contact Ari-Pekka Saanio at Borenius & Kemppinen by telephone (+358 9 615 333) or by fax (+358 9 61 53 34 99) or by e-mail
([email protected]).

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