The Cyprus Securities and Exchange Commission (CySEC ) recently announced that it has completed its investigation into the market manipulation that occurred between Commerzbank AG and Cyprus Popular Bank (CPB) during the country's 2013 financial crisis, with the regulator imposing a fine of €650,000 on the German bank.
The investigation is part of CySEC’s wider investigation into CPB’s activities and role in the lead up to the financial crisis in Cyprus and subsequent bail-in of the country’s banking sector in 2013.
CySEC has imposed the fine against Commerzbank over investment operations conducted by CPB, which has since gone into administration, following its Merger with Marfin-Egnatia Bank, a Greek bank.
Commerzbank investigation ongoing for 8 years
In particular, the investigation, which was brought to the attention of CySEC by the Member of Parliament representing AKEL, Irene Charalambides, looked into whether the firms had broken laws which prohibit a company from buying its own stock.
“CySEC examined a possible violation of Article 19 of the Insider Dealing and Market Manipulation (Market Abuse) Law of 2005, as applicable, in relation to CPB’s Structured Products ISIN XS0345364227 and XS0345364656 or other persons, for the period 1 January 2008 – 15 March 2013,” the regulator said in its statement on Friday.
According to the Cypriot regulator, CPB invested into two structured products issued by Commerzbank AG on the 5 February 2008. The composition of the underlying portfolio of the structured product was dynamic and was determined by the person appointed Index Sponsor, the watchdog said in its statement.
CySEC: clear potential conflict of interest
Initially, Marfin Egnatia Bank S.A (a subsidiary of CPB) was the Index Sponsor. However, because of the merger between Marfin Egnatia Bank S.A. and CPB, the latter then became the index sponsor of the structured products, as of the 31st of March 2011. CySEC highlights that this created a clear potential conflict of interest.
Based on the evidence seen by the authority, CySEC said that Commerzbank AG executed the voting rights of the underlying shares, including the CPB shares, during Shareholders’ General Meetings. These were conducted based on specific instructions from the Index Sponsor. The proxy persons had a direct relationship with the relevant entities, the regulator said.
“CySEC concluded that CPB and Commerzbank AG used the structured product with ISIN XS0345364227 as vehicle in order for Commerzbank AG to act as a surrogate of CPB in a disguised manner. They acted in concert to manipulate the market in relation to CPB’s shares on the 4, 5, 6, 14, 15, 18, 19, 20, 21, 26 and 27 April 2011 and 6 and 30 May 2011…”
