Course maintenance

As price management (including rate intervention , stabilization or price support ) refers to measures (purchases or sales) of market participants (mainly banks as part of its proprietary trading ), which aim, the market price of a security , a currency or a commodity within a certain range to keep or stabilize.

aims

The price maintenance is intended to prevent sharp fluctuations in the market price of a financial instrument. In the event of an undesirably strong price upswing, the corresponding securities, foreign exchange or raw materials are sold; in the event of an undesirably strong price drop, the traded values are bought.

Price maintenance is often carried out by the leading syndicate bank (sole lead manager / global coordinator) after a new security has been issued. The main tools are the share buyback and the greenshoe . Price maintenance is only permitted on the basis of the exemption provisions of the Market Abuse Ordinance .

Legal issues

Price maintenance in this sense is actually prohibited as effective price manipulation (Articles 14 and 15 of the Market Abuse Ordinance , in Switzerland according to Article 155 of the Financial Market Infrastructure Act (FMIA).)

The Market Abuse Ordinance generally prohibits the undertaking of transactions that are likely to bring about an artificial price level. The material scope of protection of the Market Abuse Ordinance covers the formation of stock exchanges and market prices for securities, money market instruments, derivatives, subscription rights and foreign currency; also goods because of their function as underlying of derivatives recorded.

However, if the price maintenance is specifically announced in the stock exchange prospectus, it is one of the exceptional circumstances of Article 5 of the Market Abuse Regulation. A legitimate reason is therefore also present if the bank customer has expressly contractually agreed with his bank to maintain the price of an issue.

Since security issues can trigger a wide variety of reasons for strong price fluctuations, but these are often not assessed as rational or positive for the shareholders, many legislators have therefore allowed price maintenance under strict conditions for a certain period of time (often up to 30 days after the corporate action). For example, the buyback of shares at prices above the issue price is also prohibited, as this would not be a support measure but an active price drive.

Types of course maintenance

A distinction is made between three course maintenance measures:

In pure stabilization ( pure stabilization ) will share regular and transparent bought back when prices fall through the market (the stock market).
With price maintenance via short positions ( short covering ) , a liability is built up through the initial placement of more shares than are actually to be issued (or newly created through a capital increase), usually through the securities lending of a greenshoe , which is built up either through share buyback or through Converting the loan into a purchase.
In the relatively infrequent criminal commandments ( penalty bids ) the underwriters support the exchange rate, by retaining their customers via the corresponding share sale contracts or buy up himself.

Reasons for course maintenance measures

In direct connection with IPOs or capital increases , the price maintenance serves to prevent a sharp drop in the share price after the issue. This is particularly wanted on the part of the syndicate banks involved, since a negative post-transaction performance generally includes a bad transaction and this also has a negative impact on the reputation of the banks involved.

If the price maintenance is carried out via an initially placed but borrowed greenshoe , in addition to the harmonization of the share price, at least a small profit is achieved for the company or the underwriter through the difference between the placement price-buy-back price-loan fee. This is certainly an additional incentive for companies and underwriters to take possible course maintenance measures.

literature

Tobias W. Grüger: Course maintenance - permissible course maintenance measures or prohibited course manipulation? Nomos, Baden-Baden 2006, ISBN 3-8329-1993-7 .
M. Lüdiger: Course maintenance for Initial Public Offerings (IPO), A model-based economic analysis from the perspective of the issuing bank ; Books on Demand, Norderstedt 2008, ISBN 978-3-8334-8608-1 .

Individual evidence

↑ Ralf Plück, Karl Jürgen Schmutzler, Peter Kühn: capital market law. Gabler, Wiesbaden 2003, ISBN 3-409-54012-1 , p. 270.
↑ USA: Regulation M, Rule 104, of the Securities and Exchange Commission (SEC)
↑ UK: Market Conduct Rules of the United Kingdom Financial Services Authority (FSA).
^ ^A ^b Tim Jenkinson, Howard Jones: The economics of IPO stabilization, syndicates and naked shorts. In: European Financial Management. Volume 13, No. 4, September 2007, pp. 616-642.

[1] Ralf Plück, Karl Jürgen Schmutzler, Peter Kühn: capital market law. Gabler, Wiesbaden 2003, ISBN 3-409-54012-1 , p. 270.

[2] USA: Regulation M, Rule 104, of the Securities and Exchange Commission (SEC)

[3] UK: Market Conduct Rules of the United Kingdom Financial Services Authority (FSA).

[kurs-4] A ^b Tim Jenkinson, Howard Jones: The economics of IPO stabilization, syndicates and naked shorts. In: European Financial Management. Volume 13, No. 4, September 2007, pp. 616-642.