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Understanding Market Manipulation


Market malfeasance compromises the financial integrity of marketplaces, crumbling investors’ trust in the system. Market malfeasance gives an upper hand to unworthy market players, who benefit at the expense of legitimate traders. The Financial Conduct Authority is UK’s leading watchdog that prevents, detects, and punishes market manipulators. [1] the authority’s primary mandate is to protect consumers, enhance market integrity and promote healthy competition. The UK has ratified several international instruments, such as the European Union market abuse regulation, that criminalize insider dealing, unlawful disclosure, market manipulation and attempted manipulation civil offences. These regulations enable FCA to prevent and detect market abuse. Market manipulation is a criminal offen[2]

The Financial Services Act 1986 grants additional prosecutorial and enforcement powers to the Securities and Investment Board (SIB). Under the act, the board has the capacity to institute equitable remedies claims such as injunction and restitution against unlicensed corporate dealings, deter financial practitioners who engage in market fraud from conducting any activities in the finance industry and wind up unlicensed business operations. The Serious Fraud Office has received criticisms over its effectiveness in effectively curbing financial fraud. The Financial Services and Markets Act was enacted in 2000 to convict financial fraud to remedy the situation. The act broadly defines financial fraud and deploys a risk-based approach to combat financial fraud. FCA commonly uses its statutory powers [3]to impose sanctions against fraudulent investments. FCA additionally prohibits [4] and prosecutes [5] economic fraud-related offences. [6]


FCA, in a Published Decision Notice, has alleged that three bond traders: Diego Urra, Jorge Lopez Gonzalez, and Poojan Sheth, are liable for market abuse. At the alleged time of market manipulation, the three bond traders were employees of Mizuho International Plc. FCA has stated that between 1st June 2016 and 29th July 2016, the three traders placed huge false orders for the Italian Government Bond Futures. FCA alleges that the trader intended to create a false impression of the Italian BTP’s demand and supply. Placing huge orders was to enable the execution of small orders. FCA alleges that the three trader’s conduct is a misrepresented impression of BTP futures, a fact they knew to be false or likely to give misleading orders for BTP futures. The BTP orders were placed intentionally since the three traders placed misleading orders severally, and their sole intention was to lure traders into BTP trade.

FCA, as a result, imposed a fine of £395,000 on Urra and £100,000 each on Lopez Gonzalez and Sheth. FCA additionally banned the three traders from conducting regulated activities. FCA’s reasoning behind the heavy penalty was to mirror the severe nature of the market manipulation offence and deter traders from engaging in criminal activity. Jorge Lopez Gonzalez applied to the tribunal to establish whether FCA’s decision to impose the said sum of fine and prohibition thereof on them is legitimate. FCA holds that its action in the Decision Notice mirrors its commitment towards eradicating market manipulation.

Laws That the Three Traders Violated.

The Financial Services Act 2012,[7] Criminalizes different forms of market manipulation, such as false or misleading information, price distortion, and manipulation of transactions. Market manipulation involves intentionally manipulating market prices through false or misleading information, artificially inflating or deflating prices, or manipulating trading activity. Section 397 and Section 118 of the Financial Services and Market Act, though not explicitly prohibit market manipulation. It provides market manipulation as any illegitimate interference in the price-forming mechanism through misleading signals of the demand and supply of financial securities. It intends to induce investors to buy shares.

The US government, in the flash crash case of 2010, held the defendant responsible for spoofing, stating that although Navinder Singh Sarao’s scoffing behaviour had minimal impact on the market prices, the amalgamation of the large sell orders and extensive money withdrawal caused the market prices to crumble. The defendant, in the matter, was a stock trader who ruined the market by using fraudulent trades to trigger an instantaneous stock market crash. Sarao’s intention in th spoofing business was to suddenly forge a market trade that instantly increases the price and enables the offender to accrue huge profits.

Article 12 of the UK MAR criminalizes market manipulation. The article broadly defines market manipulation, including attempted manipulation, benchmarks, and commodity contracts. The UK market abuse regulation much describes the scope of market manipulation to include any conduct that is done when a person contracts a financial transaction, places an order to trade, or carries out any other behaviour that gives or is likely to pass false or misleading signals as to the supply of, demand for, or price of, a financial instrument, secures, or is expected to secure, the cost of one or several financial instruments unless carried out for legitimate reasons and under accepted market practices. [8]

The EU Market Abuse Directive 2003/6/EC provides the fundamental principles and basic legal framework governing market abuse. Directive 2003/124/EC and Regulation (EC) No 2273/2003 provides some technical issues . The Committee of European Securities Regulations (CESR) publishes guidance on the common operation of the Directive. The Commission ensures compliance with European law. The European legislation does not provide a clear definition of market manipulation. The EUI market directives, however, mandate states to prohibit securities fraud and give investors as much information concerning the financial securities prices as possible to prevent crime. The EU directives like UK legislation, provide that the most critical element of crime in market manipulations misleading information and price distortion to lure investors, into the high demand and supply of the market.

The court in the case of R v De Berneger [9], set a precedent for what conduct constitutes market abuse. The case was the first in which the court handled market abuse as a criminal matter instead of a civil matter. In the case, Dover French officer conspired with De Berenger to provide misleading information concerning Napoleon’s death., which information signalled and caused the rise of securities prices, inducing investors into the high purchase of government’s debts. The court in the matter held that market abuse entails any misleading statement or conduct made in an attempt to lure investors into securities trade and which the defendant foresees its ability to ramify sudden alteration of the demand and supply of securities.

Market manipulation, in some way operates like a misrepresented contract. The burden of proof is on a balance of probability, where the investor is required to proof that the defendant made a misleading statement and that the former’s reliance on the statement made them contract the trade. The investor must prove that the sole reason they invested in the financial securities was based on the reliance on the misleading statements, as they intend huge profits out of the trade. In the case of R v Bailey and Rigby, the court held that the complainant need not prove the results of trade made out of the misleading statements but that they must prove that there was a misleading statement that was made, which signalled sudden price fluctuations for which reason they entered the contract.

Elements of Crime in Market Manipulation.

 Actus Reus.

Sections 89, 90 and 91 provide three elements of the crime of market manipulation. These are Misleading Statements and Dishonest Concealment ,[10] misleading impression[11] and Misleading Statements in Relation to Benchmarks.[12] The first element makes it a criminal offence to make a misleading statement or dishonestly conceal information that, expectedly, can have a negative effect on the price of a financial security. Examples include misrepresenting statements about a company’s financial performance or withholding information that would affect the price of a security. A defendant will be liable for market manipulation in as far as they make misleading information, forecast or profit, which they know to be false, misleading or deceptive in a material particular or reckless in that regard.

The difference between the offence created in section 89 and section 90 is that in the latte, the defendant is liable if he acts or creates an impression as to the market , with their intention being to escalate the market prices of shares, which causes investors to buy or sell shares. This means that, under section 90, of the Financial securities act, it is insufficient to prove that the defendant’s intention was to create an impression, whether intentionally or recklessly.

Misleading Impressions criminalize any conduct that creates a misleading impression of the supply, demand, or price of a security. An example include placing orders with no intention of executing them or creating the illusion of high trading volume to attract other traders, like in the FCA Decision against the three bond traders: Diego Urra, Jorge Lopez Gonzalez, and Poojan Sheth.Misleading Statements in Relation to Benchmarks criminalizes any conduct that makes a false or misleading statement in relation to a benchmark, such as LIBOR or EURIBOR. [13]Any misrepresentation concerns deceptive market chains and price positioning is, therefore, market manipulation.

The above criminal offences do not apply in circumstances where accused persons engage in market manipulation to conform to the price stabilization rules, the control of information rules, or the exemption provisions for buy-back programmes and the stabilization of financial instruments. FCA has a statutory mandate to prosecute misleading statements, misleading statements relating to benchmarks and breaches of the Money Laundering Regulations and terrorist financing.[14] The increased integration and internationalization of the financial market saw the adoption of the MAD. The EU, amongst other international organizations, regulates financial markets by preventing informative asymmetries and negative externalities, removing obstacles to free competition, and fighting against financial misconduct.

The UK , through the financial services act of 2012, has adopted a market-oriented approach, where financial fraud is punished to deter people’s engagement in financial fraud. There is not an internationally binding ratified treaty that criminalizes market manipulation; the European Union, for instance, requires that member states enact national legislation that is adequate, effective , proportionate and dissuasive. UK’s decision to criminalize market manipulation under sections 89, 90 and 91 of the Financial Services act is founded on the consideration that criminal sanctions better deter financial fraud than civil sanctions. sanctions, in particular imprisonment and fines, are particularly intended to dissuade and deter the public from engaging in market abuse to promote fair competition, market trust and consumer protection.

Establishing the elements of crime in market manipulation is hard, making it hard for FCA to prosecute persons engaged in market abuses. Section 118, however, treats market manipulation less seriously as a criminal offence and, instead, allocates four different transactions that constitute market manipulation. The latter includes effecting transactions or orders to trade, implementing transactions that employ fictitious devices, and transactions that proclaim information that is foreseeable to create a false or misleading impression to willful investors. Section 397 provides that complaints must proof the defendants’ men’s rea in market manipulation, while section 118 provides that the most critical thing is effect over intent. Lastly, section 118[15] , criminalizes the conduct of routinely using misleading information or of the market to thwart market demand and supply. The difficulty of enforcing market manipulation criminal offence lies in the blurred distinction of whether courts and tribunals should look into the defendant’s intention or the results of the defendant’s conduct.

Mens Rea.

The requisite men’s rea in market manipulation is the fraudulent intention to lure investors into the trade through false or misleading signals as to the supply of, demand for or price of financial instruments and transactions or orders to trade, which employ deceptive devices or any other form of fraud or contrivance. Section 397 of the Financial Services and Markets Act 2000 (FSMA) requires that FCA proves the men’s rea element for the offence in any financial fraud criminal allegation.

Penalties and enforcement of the market manipulation criminal offence.

Accused persons found guilty of market manipulation under the financial securities are liable for imprisonment or a fine, or both. The standard of proof is, however on a balance of probability, and the main intention of the court criminalization of market manipulation was to deter people from engaging in financial fraud[16]. The ineffectiveness of FCA in proofing criminal liability in most cases has been due to complex mens rea requirements , which render it difficult to proof market manipulation cases., for which reason FCA rarely prosecute financial fraud offenders.

The importance of preventing market manipulation and abuse in maintaining fair and efficient securities markets.

Securities markets have a crucial role in states’ economic and financial development. Securities mainly convert savings into financing for the real sector. securities markets play a crucial role in asset pricing. They transfer and expose risk to investors to know the most accurate time to buy or sell their shares and accrue as much profit as possible. Securities market cushion institutions such as banks and insurance companies from the financial crises. It is therefore important to prevent market abuses in all forms, be it inside dealing, market manipulation, and ad hoc disclosure. This ensures that states have financial stability and experience greater profits and contributions from finance trade.

A clean market is one that has efficient and effective price formation and provides a venue that attracts willful investors. A clean market ensures that investors are protected, that every person operates in a pool of free competition, and that they do not risk losing their capital. To establish such a market, the state must ensure that the market behaviours of all players are reliable and trusted by all parties.

Market abuse through inside dealing, market manipulation, and ad hoc disclosure, hinders the smooth running of financial trade , fair competition and consumer protection. It makes it expensive to run trade by adding cost or reducing profits for participants and ultimately eroding investor’s trust in the markets. Markets require a vigorous resource and capital allocation so that it remains responsive to the needs of all players. This way , a market is able to attract transnational players, raising the profits pool. To establish a cost-effective market, the UK has to deal with all forms of market abuses seriously to avoid running into the risk of the financial crisis

Securities regulation manages the imbalances of information between the different market players ranging from issuers and investors, clients and financial intermediaries and between counterparties to transactions. This fosters smooth markets and deters market disruptions. It fosters investors’ confidence in the markets.[17]


The main challenges facing th effective eradication of market abuse include the lack of ability of regulators to effectively enforce compliance with existing rules and regulations. The UK particularly faces insufficient legal authority, a lack of resources, political goodwill and skills, all of which factors have reduced FCA’S 123capacity to effectively execute regulation. These challenges come amidst increased technical complexity, such as standards for and supervision of the valuation of assets and risk management practices and rapidly evolving market behaviours. Although UK legal framework has tremendously regulated market manipulation, more needs to be done to counter the rapidly and constantly evolving market abuses. This includes,

Prevention of market manipulation through adapting and addressing the culture and understanding of market participants, regarding firstly what constitutes market abusive or manipulative behaviour. This can be achieved through having a common understanding between regulators , in this case, FCA , issuers, market participants and venues of the risk that market manipulation has to financial securities.

Protection of investors from market manipulation through ensuring that venues and market participants have the requisite systems, controls and culture in place to detect and report market abuse and suspicious behaviours to FCA.

FCA can additionally restrict market access where it deems fit to protect investors from market manipulation.

Adoption of modern technology. FCA needs to ensure that it adopts the most modern technological and human resource systems. It needs to evolve as financial fraud evolves and keep up the pace of the evolving systems and market behaviours. This way, FCA will sustainably and efficiently bring to book the perpetrators of market abuses.


In conclusion, financial fraud is slowly ramifying into complex offences. The UK has, however fastened its rules governing market abuse through the enactment of the financial securities act, which criminalizes, under sections 89, 90 and 91 all conduct that provides misleading information and misrepresentation, with the sole intention of influencing the demand and supply of financial securities. The current international and UK domestic legislation provides mechanisms to counter market abuses by attaching a criminal nature to market manipulation conduct. Criticism that the legal framework inadequately addresses market abuse is based on the fact that it is impossible for the prosecution to prove the men’s rea element. Courts have, however set precedents that, in some cases, the intent should not be of paramount consideration, like the effect the misleading statement has on inducing investors to either buy or sell their shares. The available precedent on market manipulation adequately speaks to the criminal elements of market abuses, particularly market manipulation. The FSA regu;ar updating of their rules is solely to maintain high consumer protection and fair competition.


Barnes, P., 2009. Stock market efficiency, insider dealing and market abuse. Gower Publishing, Ltd.

Carvajal, A., & Elliott, J. E. (2007). Strengths and weaknesses in securities market regulation: A global analysis.

Craig, P. and De Búrca, G., 2020. EU Law: Text, Cases, and Materials UK Version. Oxford University Press, USA.

FCA v Capital Alternatives Ltd [2018] 3 WLUK 623 at [370]

FSA v Asset Land [2013] EWHC 178 (Ch) at [11]

The Counter Terrorism Act, 2008.

The Financial Services Act 2012.

The Financial Services and Markets Act 2000

The UK Market Abuse Regulation.

The EU, Market Abuse Regulation.

[1]Financial Services And Markets Act 2000 (FSMA)

[2]ce. Sections 89-91, the Financial Services Act 2012.

[3] Section 2016, the Financial Services and Market Act, 2000.

[4] Section 56, the Financial Services and Market Act, 2000.

[5] Section 401, the financial services and market act

[6] Barnes, P., 2009. Stock market efficiency, insider dealing and market abuse. Gower Publishing, Ltd.

[7] Sections 89, 90 & 91 of the Financial Services Act 2012.

[8] UK MAR Article 12, UK MAR Article 15, UK MAR Annex

[9] [1814] 3 M & S 67; 105 Eng Rep 536. p. 4.

[10] Section 89, The Financial Services Act.

[11] Section 90, The Financial Services Act.

[12] Section 91, The Financial Services Act.

[13] Craig, P. and De Búrca, G., 2020. EU Law: Text, Cases, and Materials UK Version. Oxford University Press, USA.

[14] Schedule 7, Counter-Terrorism Act, 2008.

[15] Financial Services and Markets Act.

[16] FSA v Asset Land [2013] EWHC 178 (Ch) at [11] and ; FCA v Capital Alternatives Ltd [2018] 3 WLUK 623 at [370]

[17] A good overview of the approach to securities regulation can be found in Bernard Black, 2001 “The Legal and Institutional Preconditions for Strong Securities Markets,” UCLA Law Review, vol. 48, (Los Angeles, California: University of California at Los Angeles), pp. 781–855.


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