France: The Regulation of Market Manipulation
| Pages | 189-194 |
| DOI | https://doi.org/10.1108/eb025777 |
| Published date | 01 April 1996 |
| Date | 01 April 1996 |
| Author | Pascal A. Rayer |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 4 No. 2 — International
France: The Regulation of Market Manipulation
Pascal A. Rayer
INTRODUCTION
It may strike those familiar with French law as
astonishing that in 12 years of existence, the new
anti–manipulative provisions have given rise to so
few decisions. Several factors may account for this
situation: first, there are inherent problems and
limits in operating the existing criminal provisions;
secondly, a lot of manipulation cases are dealt with
under different legal concepts or different rules.
Before turning to the existing regulation of
manipulation, it has to be noted that anti–manip-
ulative devices are not limited to legal intervention.
They may also take the form of private action. For
example, steps may be taken to reduce the risk that
a party to a contract will influence market prices
where the contract price is based on them. Investor
scepticism and market reform may also reduce
manipulation, but they are only partially adequate.1
CRIMINAL PROVISIONS
Articles 419 and 420 of the 1810 Code Penal as
amended in 1926 created a criminal offence of
'illicit speculation'.
Three elements had to be proved under Article
419:
— an abnormal action (action anormale);
— an artificial rise or fall in prices as a result of
such an action;
— an intent to make a personal profit which is not
the result of the natural interaction of supply
and demand.
In practice, the real problem with this provision
was that it overemphasised the notion of
a
personal
profit, therefore making it difficult to draw the line
between unlawful and permitted activities.
The law of 22nd January, 1988
An executive order of 1st December, 1986 repealed
Article 419–2 of the Penal Code (Code Pénal). But
it was soon realised that there was a loophole in
the system. A bill was passed on 22nd January,
1988,
which introduced an Article 10–3 in the
Order No. 67–833 of 28th September, 1967, creat-
ing the Commission des Opérations de Bourse
(COB).
Article 10–3 of Order No. 67–833 of 23rd Sep-
tember, 1967 provides that a person guilty of
manipulation shall be liable to imprisonment for a
term not exceeding two years and/or to a fine
either not exceeding FF10m or ten times the
prof-
its made as a result of the manipulation.
Manipulation exists as an offence where
'any person, directly or through a third party,
knowingly engages or attempts to engage in an
organised course of conduct in the market for
securities, quoted financial instruments or nego-
tiable future contracts, with a view to hindering
the regular functioning of the market by mis-
leading other parties.2
The new text requires proof of two elements:
— the 'élément matériel' (material element): a
'manoeuvre' the object of which is to hinder
the regular functioning of the market;
— the 'élément moral' (mens
rea),
which is here a
'dol spécial
(culpa),
which means in practice that
the standard of proof
is
higher: the 'manoeuvre'
must be knowingly carried on and must result
in other parties being misled.
The first draft of Article 10–3 referred to an
'action' instead of a 'manoeuvre'. The Sénat
decided to adopt the word 'manoeuvre' to empha-
sise the requirement of an organised operation,
which could help to distinguish abusive and per-
mitted activities. The legislator made it clear that
the last part of Article 10–3 'by misleading other
parties' (en induisant autrui en erreur) is not an
additional condition but the intended consequence
of the 'manoeuvre'.
The new provision does not require any particu-
lar speculative intent; it is rather based upon the
concept of alteration of the regular functioning of
the market. In that respect, it is largely framed on
US law and English law. It is worth noting also
that the text covers actions conducted by an issuer
and by an intermediary or any other person. Any
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