Redefining trade-based market manipulation

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

Trade-based market manipulation, which is usually described as trading shares to initiate a price change or to cause an artificial price, has received wide attention in policy and academic discussions, although the behavior is still poorly defined in both legal and economic literature. This Article contributes to an understanding of manipulation by providing a precise definition. A differentiation is made between supported and unsupported price pressure. Supported price pressure contributes to price efficiency, while unsupported price pressure creates societal costs. Trade-based market manipulation, thus, should be defined as exercising unsupported price pressure. The analysis sheds light on the long-standing debate about the possibility of formulating an objective definition of manipulation, refuting the assertion that a mens rea element is necessary. Existing prohibitions should be interpreted in line with the 'unsupported price pressure' -standard, that is allow supported price pressure but bar unsupported price pressure.
Original languageEnglish
Pages (from-to)1169-1220
Number of pages51
JournalValparaiso University Law Review
Volume42
Issue number4
Publication statusPublished - 2008

Keywords

  • Manipulation
  • Market abuse
  • Securities fraud
  • Securities regulation
  • Financial markets

Cite this

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title = "Redefining trade-based market manipulation",
abstract = "Trade-based market manipulation, which is usually described as trading shares to initiate a price change or to cause an artificial price, has received wide attention in policy and academic discussions, although the behavior is still poorly defined in both legal and economic literature. This Article contributes to an understanding of manipulation by providing a precise definition. A differentiation is made between supported and unsupported price pressure. Supported price pressure contributes to price efficiency, while unsupported price pressure creates societal costs. Trade-based market manipulation, thus, should be defined as exercising unsupported price pressure. The analysis sheds light on the long-standing debate about the possibility of formulating an objective definition of manipulation, refuting the assertion that a mens rea element is necessary. Existing prohibitions should be interpreted in line with the 'unsupported price pressure' -standard, that is allow supported price pressure but bar unsupported price pressure.",
keywords = "Manipulation, Market abuse, Securities fraud, Securities regulation, Financial markets",
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Redefining trade-based market manipulation. / Nelemans, Matthijs.

In: Valparaiso University Law Review, Vol. 42, No. 4, 2008, p. 1169-1220.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Redefining trade-based market manipulation

AU - Nelemans, Matthijs

PY - 2008

Y1 - 2008

N2 - Trade-based market manipulation, which is usually described as trading shares to initiate a price change or to cause an artificial price, has received wide attention in policy and academic discussions, although the behavior is still poorly defined in both legal and economic literature. This Article contributes to an understanding of manipulation by providing a precise definition. A differentiation is made between supported and unsupported price pressure. Supported price pressure contributes to price efficiency, while unsupported price pressure creates societal costs. Trade-based market manipulation, thus, should be defined as exercising unsupported price pressure. The analysis sheds light on the long-standing debate about the possibility of formulating an objective definition of manipulation, refuting the assertion that a mens rea element is necessary. Existing prohibitions should be interpreted in line with the 'unsupported price pressure' -standard, that is allow supported price pressure but bar unsupported price pressure.

AB - Trade-based market manipulation, which is usually described as trading shares to initiate a price change or to cause an artificial price, has received wide attention in policy and academic discussions, although the behavior is still poorly defined in both legal and economic literature. This Article contributes to an understanding of manipulation by providing a precise definition. A differentiation is made between supported and unsupported price pressure. Supported price pressure contributes to price efficiency, while unsupported price pressure creates societal costs. Trade-based market manipulation, thus, should be defined as exercising unsupported price pressure. The analysis sheds light on the long-standing debate about the possibility of formulating an objective definition of manipulation, refuting the assertion that a mens rea element is necessary. Existing prohibitions should be interpreted in line with the 'unsupported price pressure' -standard, that is allow supported price pressure but bar unsupported price pressure.

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KW - Market abuse

KW - Securities fraud

KW - Securities regulation

KW - Financial markets

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JO - Valparaiso University Law Review

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