Redefining trade-based market manipulation

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.