What is Market Abuse?
Market abuse describes circumstances where unlawful behaviour takes place in regards to financial markets. The types of market abuse include market manipulation and insider dealing (or insider trading).
Marketing manipulation takes place when someone intentionally discloses false or misleading information with the intention to influence the price of shares for their own personal benefit. Examples of market manipulation include, but are not limited to:
- Churning – Where a stock broker attempts to increase activity in a client’s account by buying and selling orders at the same price with the intention to drive up the price, thereby deceptively attracting more investors
- Ramping – Spreading rumours or creating inaccurate activity to raise stock prices
- Bear raiding – Where a stock broker tries to short sell a security and drive prices down, making a profit by allowing it to be re-bought at a lower price
- Cornering – Acquiring enough of a certain commodity to gain control and establish the price for it
Insider dealing is the term given to the trading of stock or other securities, such as bonds or stock options by people ‘on the inside’ with access to private information about the company. This inside information specifically relates to information that would have a significant effect of the price of shares in a company, if published.
An investor with private information in regards to stock is considered to have an unfair advantage over other investors who are not privy to this information. Someone who trades based on non-public information is guilty of illegal activity and should only trade using material information found in the public domain.
There is an ongoing debate over whether or not insider dealing should be illegal. Partly because most insider trading is not detected and also because there is some question over whether insider trading is detrimental to any party in a legal sense. However, insider trading in the UK has been illegal since 1980 and the FSA maintain the stance that insider dealing is not a victimless crime and is deemed fraud.
Insider Dealing Legislation
An individual is committing a crime if they use inside information which is price-sensitive in relation to shares, if they deal shares related to the inside information, or if the dealing takes place on a regulated market or via a broker.
Perpetrators of insider trading can be defended if they were not expecting the sensitive information to glean a profit, they were under the impression the information was widely known, they would have bought or sold the same shares even without access to the private information.
Although it can be difficult to detect insider dealing, prosecutions can result in a fine and/or up to seven years of imprisonment. If you believe you are being investigated for insider dealing, seek legal advice from our team of fraud barristers as soon as possible.