Insider Trading In Croatia

Main purpose of modern stock exchanges is to interconnect supply and demand

in the best possible way in order to ensure that all trading parties get same level

of information and fair game in the market. Still, even in the highly regulated

systems there are always players discovering loopholes helping them make more

profit.

Market abuse is more dominant on underdeveloped capital markets where there

is no suitable regulation and control. So is the croatian securities market a fertile

ground for different players: from powerful insiders that trade classified

information, to players that fix prices.

Lately, the croatian regulatory agency (HANFA) decided to rectify some of the

market irregularities. New rules of the game resulted with revoking licenses

from brokerage firms and brought substantial disorder among the brokers that

were used to do the business for a while their way.

Most common ways of market abuse were using classified information, price

manipulation, and spread of fake/untrue information.

Using classified information was the most widespread way of getting easy and

quick profits and was used mostly by company's executives (board of directors).

Classified information meant all the information about the company's business

that can influence its stock price (takeovers, mergers, financial statements,

analyst predictions, dividends payout, etc.) not presented in public.

Using such information the beneficiaries could make profits and disqualify the

other players that didn't have it. As is using classified information difficult to

detect directly, most often unusual happenings in the market (big price changes

and big trading volume differences) showed insight of possible information

misuse and abuse. Regulatory agency started investigation trying to verify the

facts and connections between information traders.

The securities market abuse law states that, depending on the case, the penalty

varies between the fine of minimum 100 daily wages, and 2 years of

imprisonment.

An example is one of the few cases where the leading croatian pharmaceutical

company Pliva thought it wasn't neccessary to inform the public about its

takeover by Actavis, that resulted by intense trading and price increase of its

stock. The investigation was pursued afterwards, and its director was criminally

convicted.

Another common way of classified information abuse is trading stocks at higher

prices. This is the favorite activity of the brokers and means buying stocks for