Out-Law / Your Daily Need-To-Know

Market manipulation

Out-Law Guide | 18 Jul 2007 | 10:12 am | 1 min. read

This guide is based on UK law as at 1st February 2010, unless otherwise stated. It is part of a series on the FSA and Securities Regulation . Both insider dealing and market manipulation are types ...

This guide is based on UK law as at 1st February 2010, unless otherwise stated. It is part of a series on the FSA and Securities Regulation.

Both insider dealing and market manipulation are types of market abuse under the civil regime described above; but each is also a criminal offence. (See: Insider dealing, an OUT-LAW guide.)

A person will be guilty of market manipulation if they commit any act or engage in any conduct that creates a false or misleading impression as to the market in any investments, or their price or value, and they do it with the intention of:

  • creating such a false and misleading impression; and
  • inducing another person to deal (or not deal) in those investments.

The ‘classic case’ is that of the share ramping operation, whereby a party drives up a company’s share price by buying heavily and so creating a false impression of the demand for the shares – perhaps to influence a takeover where the shares are being used to settle part of the offer price.

Market manipulation, when prosecuted as a criminal offence, can mean an unlimited fine, a prison sentence of up to seven years, or both.

It should be emphasised, though, that there has to be a clear intention on the part of the accused to mislead and for others to rely on the misleading impression. It is a defence to show that you reasonably believed that you would not create a false impression; evidence of full public disclosure of what was being done and by whom will greatly assist your case.

Other defences apply where the action was taken in accordance with rules to control the issue of information (such as the Listing Rules) or in connection with a buyback of shares.