Market Abuse
Corporate Law Assignment
Criminal sanctions for market abuse by traders and investors are not adequate and we need other forms of enforcements –like the administrative sanctions, the civil penalties/fines etc.?
Answer: Administrative sanctions may be the most viable solution to curb the problem of Market Abuse as there is a lower burden of proof for prosecution and it solves the purpose of deterrence.
Background:
Market abuse is a very general term to describe actions by investors that unfairly take advantage of other investors. It includes not only insider dealing but various actions attempting to mislead the market, such as providing false information about a company’s performance or giving a misleading impression of the market in the shares1. It is very important for a state to curb the problem of market abuse and to keep its markets clean. Markets should not only be clean and fair but also should seem to be clean and fair in order to encourage investment.
We live in an information-led society. Information and knowledge have become more important than ever. It cannot be argued that the first one with information or knowledge is likely to confer an advantage. It has been argued that market abuse through insider trading and market manipulations are victimless2 and not immoral crimes as some see it as ‘the sharper market participants simply making a well earned shilling due to their shrewd knowledge of the markets and the people in it3’. But it is clear on a closer inspection that it is the society, which bears the loss. Market abuses through insider trading4 and market manipulations (market manipulation includes techniques like ‘Pump & Dump5’, ‘Trash & Cash6’ etc.) have a negative impact on the other players in the market. In R v Hannes7, the courts viewed the investors as victims of insider trading transactions. Moreover, the court stated that ‘the defendant’s act had undermined the integrity of the securities market and noted
Criminal sanctions for market abuse by traders and investors are not adequate and we need other forms of enforcements –like the administrative sanctions, the civil penalties/fines etc.?
Answer: Administrative sanctions may be the most viable solution to curb the problem of Market Abuse as there is a lower burden of proof for prosecution and it solves the purpose of deterrence.
Background:
Market abuse is a very general term to describe actions by investors that unfairly take advantage of other investors. It includes not only insider dealing but various actions attempting to mislead the market, such as providing false information about a company’s performance or giving a misleading impression of the market in the shares1. It is very important for a state to curb the problem of market abuse and to keep its markets clean. Markets should not only be clean and fair but also should seem to be clean and fair in order to encourage investment.
We live in an information-led society. Information and knowledge have become more important than ever. It cannot be argued that the first one with information or knowledge is likely to confer an advantage. It has been argued that market abuse through insider trading and market manipulations are victimless2 and not immoral crimes as some see it as ‘the sharper market participants simply making a well earned shilling due to their shrewd knowledge of the markets and the people in it3’. But it is clear on a closer inspection that it is the society, which bears the loss. Market abuses through insider trading4 and market manipulations (market manipulation includes techniques like ‘Pump & Dump5’, ‘Trash & Cash6’ etc.) have a negative impact on the other players in the market. In R v Hannes7, the courts viewed the investors as victims of insider trading transactions. Moreover, the court stated that ‘the defendant’s act had undermined the integrity of the securities market and noted