Market Manipulation: An International Comparison
| Date | 01 April 2002 |
| DOI | https://doi.org/10.1108/eb026029 |
| Pages | 300-307 |
| Published date | 01 April 2002 |
| Author | Wayne J. Carroll |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 9 No. 4
Market Manipulation: An International Comparison
Wayne J. Carroll
Market manipulation is a general term covering a
number of practices deemed harmful to the capital
markets. Conduct that can lead to a violation of the
market manipulation provisions extends from active
trading to merely spreading information about a par-
ticular security or company. Market manipulation
comes in many forms, whose number is limited
only by human ingenuity.
The concept of market manipulation is anchored in
many legal systems in many forms.1 And yet, despite
the convergence of capital markets, there is no con-
sensus as to its definition, scope, application,
manner of regulation, or even the need to regulate2
this real-life aspect of today's financial markets. On
the one hand, technology and globalisation are for-
cing the harmonisation and coordination of trading
and financial practices. At the same time, regulators
and enforcers are still faced with a patchwork of
differing views with respect to, and tools to address,
such issues. Market manipulation is merely one of
these.
This paper examines the concept of market
manipulation against the backdrop of today's con-
verging capital markets. The first part of the paper
examines the abandoned merger of three major
stock exchanges, which would have provided a
testing ground for global securities market harmoni-
sation. The second part looks at the current market
manipulation rules as applied in the three individual
securities markets. The third part considers the
various enforcement tools and penalties available to
securities regulators and exchange authorities. The
fourth part examines the possible approaches to
regulatory enforcement of combined exchanges.
The fifth part addresses the possible irrelevance, or
need for modification, of the overall regulatory
approach in light of new trading technology. Finally,
the last part concludes that in order to ensure that the
merger of exchanges will work in practice, new
thinking on the part of the respective legislatures
and regulators will be required.
A RELEVANT SETTING: IX
On 3rd May, 2000, a dramatic announcement
regarding the international capital markets was
made. The London Stock Exchange and the Deutsche
Börse informed the world that they were planning a
merger of the two exchanges which would be com-
pleted by the end of the year.3 On the same day,
the Nasdaq announced
a
joint venture with the com-
pany which was to serve as the basis of the future
merged Anglo-German exchange. The goal of the
venture was to create a 24-hour seamless international
platform for trading in the securities of all three
exchanges.4 The move had been called for and dis-
cussed for years, but the speed and scope of the devel-
opments surprised even some of the most ardent
supporters.
Critics, such as UK Parliamentarian Michael
Portillo, were not so impressed by the announce-
ment, claiming differences in structure, regulatory
regime and tradition, inter alia, would make the
merger unworkable in practice.5 Mr Dieter Posch,
the Economic Minister of Hessen, who in his capa-
city as head of supervision over the Frankfurt
exchange had a definite say in the matter, voiced
his own concerns.6 Some commentators had even
come to the conclusion that the envisaged merger
would violate applicable statutory provisions.7
Whatever the legitimacy of these arguments, the
merger still needed to be approved by the share-
holders of both exchanges, who first considered
the matter in extraordinary shareholder meetings
on 14th September, 2000.8 At the end of the pro-
cess,
the opponents of the merger won out. The
iX signage, which was visible at the Frankurt
exchange during the negotiations, is now nowhere
to be found.
While the exchange's marketing departments, the
press,
and some participants and observers were
busy extolling the virtues of the venture, others
were busy in the background working out the
technicalities of how the envisaged merged exchange
might operate in practice.9 The iX venture would
have provided a perfect subject for analysing the
differences and obstacles to exchange harmonisation,
full or partial. Unfortunately, it will be necessary to
wait until a similar merger is actually implemented
to determine how some of the conflicts addressed
herein might be resolved. Though this paper
focuses on one particular aspect, namely market
Journal of Financial Crime
Vol.
9,
No.
4,
2002,
pp.
300-307
© Henry Stewart Publications
ISSN 1359-0790
Page 300
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