The Mechanics and Regulation of Market Abuse A Legal and Economic Analysis

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ISBN: 9780199244522 | 0199244529
Cover: Hardcover
Copyright: 10/27/2005

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This book offers an interdisciplinary analysis of market manipulation and insider dealing, together comprising the offence of market abuse. It examines the mechanics of market abuse and the means for its perpetration in modern financial markets, providing a critical analysis of the legal and regulatory framework for dealing with market abuse in the UK, and of the emerging EU regime. In this context, it evaluates the potential deterrent benefits of civil law remedies.

Table of Cases

xvii

Table of Treaties, European Legislative Instruments, and National Legislation

xxv

List of Abbreviations

lii

I. ECONOMIC ANALYSIS

Introduction

(19)

The Importance of Open Markets Free of Abuse

(2)

The Mechanics of Market Abuse

(1)

Efficient Allocation of Resources and Legitimacy

(1)

A Modern Study of Market Abuse

(6)

Is There a Need for a Modern Study of Market Abuse?

(2)

The End of an Era

(2)

Regulatory Reform

(2)

Scope and Structure

(11)

Analysing and Reconceptualizing Market Abuse

(8)

Structure

(3)

Modern Financial Markets and Finance Theory

(53)

Introduction

(1)

The Modern Market Landscape

(21)

The Division and Function of Modern Financial Markets

(2)

Securities Markets

(17)

Commodity and Financial Futures Markets

(2)

Modern and 'Post-modern' Finance Theory

(19)

Introduction

(1)

The Rise and Fall of the Efficient Market Hypothesis: The 'Story of a Death Foretold'?

(11)

Behavioural Analysis, 'Noise', and 'Chaos'

(7)

Bubbles, Manias, Cognition, and Herding

(8)

Introduction

(2)

Bounded Rationality and 'Rules of Thumb'

(1)

Overconfidence

(1)

Bubbles and Rationality: 'Herd in the Street'

(4)

Concluding Remarks

(4)

Deconstructing and Reconceptualizing Market Abuse

(28)

Introduction

(1)

The Mechanics of Insider Dealing

(9)

Introduction

(3)

Economic Analysis

(1)

The Impact of Insider Dealing on Market Efficiency and Outside Traders

(5)

Corporate Fraud, Governance Failures, Bubbles, and Market Abuse: Behavioural Transmissions and Causal Linkages

(16)

Market Abuse and Corporate Fraud

(2)

Bubbles and Market Manipulation

(5)

Market Abuse and Corporate Governance

(4)

Insider Dealing and Market Manipulation

(5)

Concluding Remarks

101

(2)

The Mechanics of Market Manipulation

103

(53)

Introduction

103

(1)

The Mechanics of Market Manipulation

104

(14)

Defining Market Manipulation

104

(4)

Effects-based Approach and Price Artificiality

108

(8)

Reconceptualizing Market Manipulation

116

(2)

Market Manipulation, Species, Devices, and Techniques

118

(36)

Forms of Market Manipulation

118

(1)

Information-based Manipulations

119

(8)

Manipulations Based on Artificial Transactions

127

(4)

Price Manipulations

131

(23)

Concluding Remarks

154

(2)

The Regulation of Market Abuse

156

(83)

Introduction

156

(2)

Theories of Regulation and Financial Market Regulation

158

(15)

Introduction

158

(2)

Theories of Economic Regulation

160

(4)

Forms of Government Regulation and Regulatory Instruments

164

(3)

Financial Market Regulation

167

(5)

Concluding Remarks

172

(1)

Mandatory Disclosure

173

(17)

The Origins of Mandatory Disclosure Regulation

173

(3)

Mandatory Disclosure and Economic Analysis

176

(7)

Concluding Remarks

183

(7)

Market Transparency and the Liquidity Trade Off

190

(4)

Defining Market Transparency

190

(1)

The Welfare Effects of Market Transparency Rules

191

(3)

Insider Dealing: Crime and Punishment?

194

(16)

Different Aspects of the Regulatory Debate

194

(2)

US Insider Dealing Jurisprudence

196

(3)

The Case for the Deregulation of Insider Dealing

199

(2)

The Case for the Regulation of Insider Dealing

201

(4)

Concluding Remarks

205

(5)

The Regulation (Prohibition) of Market Manipulation

210

(16)

Introduction

210

(1)

Economic Efficiency and Market Manipulation

211

(7)

The Prohibition of Price Manipulation

218

(8)

Market Manipulation and Exchange Self-Regulation: A Critical Evaluation

226

(8)

Introduction

226

(1)

The Costs and Benefits of Self-Regulation

227

(2)

Exchange Self-Regulation and the Deterrence of Market Manipulation

229

(5)

Concluding Remarks

234

(5)

II. THE EU AND UK MARKET ABUSE REGIMES

The Emerging EU Regime for the Regulation of Market Abuse

239

(68)

Introduction

239

(2)

The Evolution of EC Securities Regulation

241

(9)

The Principle of 'General Good' in the ECJ's Case Law

241

(1)

The First Financial Services Consensus and the Delors Commission: The Internal Market 'is not working'

242

(3)

The Second EU Consensus for Financial Services: The Implementation of the FSAP and the Reform of EC Financial Market Legislation

245

(1)

The Committee of the Wise Men and the 'Lamfalussy Process'

246

(4)

The Market Abuse Directive

250

(45)

The Need for a Market Abuse Directive

250

(1)

The Prohibition of Insider Dealing

251

(12)

Issuers' Continuing Disclosure Obligations

263

(2)

Prohibition of Selective Disclosure

265

(1)

Notification Duties Imposed on Issuers and their Managers

266

(1)

Investment Recommendations and Disclosure of Interests

267

(9)

Market Manipulation

276

(12)

Duty to Prevent Market Abuse

288

(2)

Supervisory Powers to Combat Market Abuse

290

(1)

Regulatory Cooperation under the Market Abuse Directive

291

(1)

Civil Liability for Market Abuse in EU Member States

292

(3)

The MiFID, the Prospectus, and the Transparency Directives as Part of the Emerging EU Regime for the Regulation of Market Abuse

295

(10)

The MiFID Rules Safeguarding Market Integrity in the EU

295

(6)

The Public Offers and Admissions Prospectus Directive

301

(3)

The Transparency Directive

304

(1)

Concluding Remarks

305

(2)

The Prohibition and Punishment of Market Abuse in the UK

307

(82)

Introduction

307

(6)

The Evolution of the UK's Market Abuse Regime

307

(3)

The Market Abuse Regime under FSMA 2000 and its Reform

310

(3)

Criminal Liability for Insider Dealing and Market Manipulation

313

(19)

Early Statutory Prohibitions

313

(1)

Misleading Statements and Dishonest Concealment

314

(2)

Misleading Practices and Conduct

316

(4)

Insider Dealing as a Criminal Law Offence

320

(4)

Other Statutory Offences

324

(4)

The Common Law Offences

328

(4)

The FSMA Offence of Market Abuse

332

(36)

Introduction

332

(1)

Definitions and Scope of the Offence of Market Abuse

333

(8)

COMAC Guidance on Market Practices Caught by the Offence of Market Abuse

341

(18)

The New Regime for Investment Research Recommendations, Disclosure of Inside Information, and Notification of Suspicious Transactions

359

(9)

Regulatory Remedies and Criminal Prosecution

368

(19)

Regulatory Investigations

368

(3)

Remedies

371

(12)

Criminal Prosecution and Trial

383

(4)

Concluding Remarks

387

(2)

Civil Liability for Market Abuse in the UK

389

(60)

Introduction

389

(2)

Civil Liability for Market Abuse: The FSMA Framework

391

(20)

Breaches of Section 118

391

(4)

Liability for Misrepresentations Relating to the Listing and Public Offer of Securities

395

(9)

Civil Liability for Unauthorized Investment Advertisements and Other Financial Promotions

404

(5)

Monetary Awards by the Financial Services Ombudsman Scheme

409

(2)

Claims in Tort and for Breach of Contract

411

(19)

Introduction

411

(2)

Claims in Tort

413

(13)

Remedies for Breach of Contract

426

(4)

Liability in Equity

430

(6)

Breach of Fiduciary Duties and Market Abuse

430

(1)

Duty of Care in Equity

431

(1)

Duty of Loyalty

431

(1)

Directors' Duties

432

(2)

Equitable Remedies

434

(2)

Unjust Enrichment---Restitution

436

(9)

Introduction

436

(1)

Tracing at Common Law

436

(1)

Constructive/Resulting Trusts and Tracing in Equity

437

(8)

Concluding Remarks

445

(4)

III. MARKET ABUSE DETERRENCE

Market Abuse Deterrence Under a Civil Liability Regime

449

(47)

Introduction

449

(3)

Public and Private Enforcement of Market Abuse

452

(19)

Market Abuse Enforcement

452

(1)

Criminal Law Sanctions and Civil Penalties

452

(6)

Civil Remedies

458

(9)

Overdeterrence

467

(1)

Civil Sanctions or Civil Remedies?

468

(3)

The Development of Civil Remedies for Market Manipulation and Insider Dealing in the US

471

(6)

An Implied Remedy

471

(2)

Vexatious Litigation

473

(4)

The Fraud-on-the-Market Theory

477

(9)

Causation, Reliance, and the Fraud-on-the-Market Theory

477

(2)

The US Doctrine of Fraud-on-the-Market

479

(2)

Implications of the Application of the Fraud-on-the-Market Presumption

481

(2)

The Advantages of the Narrow Form of the Fraud-on-the-Market Presumption

483

(3)

The Proposal

486

(9)

A Private Right of Action for Market Abuse

486

(3)

The Scope of the Proposed Right of Action

489

(3)

Loss Evaluation and Event-Based Studies

492

(3)

Concluding Remarks

495

(1)

Concluding Remarks and Proposals for Action

496

(11)

An Interdisciplinary Study of Market Abuse: An Overview

496

(3)

Conclusions and Proposals

499

(8)

Rationales for Regulation

499

(1)

Proposals

500

(2)

Protection from Market Abuse in a Polycentric Global Regulatory System: A New 'Social Contract'

502

(5)

Index

507

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The Mechanics and Regulation of Market Abuse A Legal and Economic Analysis

Summary

Author Biography

Table of Contents

Supplemental Materials