Laws and regulations for security transactions are seriously flawed, says Jóhanna Sigurdardóttir, member of parliament, if key managers in financial institutions are able to buy stocks in the companies they serve, without putting down so much as a penny and make almost ISK 500 million in a period of three months.
Last Thursday the CEO of Íslandsbanki and five managing directors made ISK 470 million by selling 241 million shares that they had purchased with loans from the bank three months ago. The purchase was seen as part of a power struggle between the managing directors and Landsbanki.
The shares sold at ISK 15.25 but purchased in late May at ISK 13.30.
After the sale the stock price of Íslandsbanki fell by 1.9%. According to a press release 118 million shares were owned by Bjarni Ármannsson, CEO of Íslandsbanki, and the remaining shares were split between five holding companies owned by the managing directors.
In an attempt to justify the sale to Morgunbladid Bjarni explained, “In terms of market value our current holdings are the same as they were before the transaction.”.
In an entry on her web site, Jóhanna says that the average gain of these six individuals in the three month time period was ISK 80 million, almost what an average salaried worker makes in a lifetime.”The managers are engaging in unethical financial trickery. It would be strange if the financial surveillance authorities have nothing to say about this and even stranger if laws and regulations allow this,” wrote Jóhanna. This issue would be examined when parliament reconvenes, she said.
Bjarni said to Morgunbladid that, thankfully, the stocks appreciated since they were bought in May similar to stocks in many other companies.
When asked if the sale was a factor in the share price decreasing by 1.9% Bjarni answered, “I would think so, but it is difficult to say.”
When Morgunbladid asked Valgerdur Sverrisdóttir, minister of trade, if there was a possibility of the ministry of trade imposing 6 month holding requirements for insiders, as is the case in the US, Valgerdur said she found the idea of such a law “interesting”, and that the issue would be researched at the ministry of trade.
Thórdur Fridjónsson director of the Icelandic Stock Exchange, said that in many countries the practice is that the issuers of shares and financial institutions draw up their own rules [for insider trading] subject to the approval of the financial authorities such as the Icelandic Financial Supervisory Authority. Thórdur said that some Icelandic financial companies have adopted the rule that insiders must hold shares for at least three months.
The directors of both the Financial Supervisory Authority and the Icelandic Stock Exchange told Morgunbladid that they think it is appropriate to examine the possibility of introducing a rule stipulating that insiders must hold on to their shares for at least six months after purchase. They both agree that such a rule would not solve all issues [relating to insider trading], and that such a rule would not go against the main objective of preventing insiders from abusing their position.
Under the headline “Who controls the market?” the Insider column of Morgunbladid’s weekly business section of August 25 discussed price manipulation on the Icelandic Exchange.
Insider observed that the prices were currently at such high levels that it was improbable that any investment in shares would return a profit. Given this fact, and other circumstances, Insider wondered if prices were being kept “in the stratosphere” by the banks and several big investors since it served their interests to keep conditions that way. The Icelandic market was so small, according to Insider, that such manipulation would be easy to bring about.
Insider admitted that such allegations were hard to prove, but earlier this year journalists at Morgunbladid had observed a transaction involving a bank and one of its customers. At the opening of the market, the bank had started to sell its own shares, driving prices down. Around noon, one of the bank’s customers bought a substantial stake in the bank, saving “several hundred millions [of króna]” compared to what he would have had to pay at the beginning of the day. After the customer’s purchase was completed, the bank started buying back its own shares, and at the end of the day the price had risen back to the same level at which it had started. All those involved denied any impropriety, but, according to Insider, their actions in the market rendered their statements “incredible”.
Insider concluded by calling for a “thorough, public investigation into business practices on the Icelandic Stock Exchange”.
The chairman of the Icelandic Stock Exchange is Bjarni Ármannsson, CEO of Íslandsbanki.