Facts of market manipulation in on-exchange trading for certain options established

The Bank of Russia with the assistance of a professional securities market participant (hereinafter, the Broker) established facts of market manipulation in on-exchange trading for certain options¹ over the period from 1 November 2019 through 3 December 2021 by Konstantin E. Krivosheev, the Broker’s employee.

Transactions in options qualified as market manipulation were conducted by K.E. Krivosheev, who used his brokerage account as the first leg to the transactions and brokerage accounts of 18 clients of the Broker as the second leg to the transactions. Moreover, K.E. Krivosheev was not authorised to conduct transactions in options on behalf of the clients, whose accounts he accessed without their knowledge. The terms of these transactions were obviously unfavourable for the clients.

According to Russian laws, transactions conducted by K.E. Krivosheev on the clients’ accounts without their knowledge shall be considered as transactions made on behalf and for the benefit of K.E. Krivosheev.

Using non-market bidding mechanism for making transactions on his account and on the clients’ accounts, K.E. Krivosheev derived excessive income worth more than ₽30 million. Transactions conducted by K.E. Krivosheev using this mechanism led to considerable deviations in the volume of trading in options.

According to the findings of the investigation, these transactions are qualified as market manipulation pursuant to Clause 3 of Part 1 of Article 5 of Federal Law No. 224-FZ, dated 27 July 2010, ‘On Countering the Misuse of Insider Information and Market Manipulation and Amending Certain Laws of the Russian Federation’ (hereinafter, Federal Law No. 224-FZ). Thus, K.E. Krivosheev has breached the ban imposed by Part 2 of Article 6 of Federal Law No. 224-FZ.

The Bank of Russia has sent a binding order to K.E. Krivosheev to cease and desist from such violations in the future.

The materials of the investigation have been submitted to law enforcement authorities.

The Bank of Russia recommends that professional securities market participants strengthen control over the activities of their customer service staff to prevent conflicts of interest, among other things. Moreover, it is necessary to ensure the monitoring of employees’ activities in internal information systems in order to prevent misconduct and identify vulnerabilities leading to such violations.

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