The regulation of market manipulation in australia: a historical comparative perspective



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LIST OF ABBREVIATIONS

ABLR

Australian Business Law Review

AFR

Australian Financial Review

ALJ

Australian Law Journal

Am J Comp L

American Journal of Comparative Law

ANZJ Crim

Australian and New Zealand Journal of Criminology

ASIC

Australian Securities and Investments Commission

ASX

Australian Stock Exchange

Aust J Leg Hist

Australian Journal of Legal History

Aust Jnl of Corp Law

Australian Journal of Corporate Law

C & SLJ

Company and Securities Law Journal

Deakin LR

Deakin Law Review

DMA

Directorate of Market Abuse

DPP

Director of Public Prosecutions

EC

Enforcement Committee

EU

European Union

Fordham L Rev

Fordham Law Review

FSB

Financial Services Board

Hofstra L Rev

Hofstra Law Review

J Afr L

Journal of African Law

JBL

Juta's Business Law

JJS

Journal for Juridical Sciences / Tydskrif vir Regswetenskap

JSE

Johannesburg Stock Exchange

MJSS

Mediterranean Journal of Social Sciences

MqJBL

Macquarie Journal of Business Law

PER

Potchefstroom Elektroniese Regstydskrif / Potchefstroom Electronic Law Journal

SALJ

South African Law Journal

SA Merc LJ

South African Mercantile Law Journal

Sec Reg LJ

Securities Regulation Law Journal

Transnat'l Law

Transnational Lawyer

UNSWLJ

University of New South Wales Law Journal

U Pa J Int'l Econ L

University of Pennsylvania Journal of International Economic Law

Yale LJ

Yale Law Journal



* Howard Chitimira. LLB, LLM (UFH), LLD (NMMU). Senior Lecturer, Faculty of Law, North-West University. E-mail: Howard.Chitimira@nwu.ac.za. This article was influenced in part by Chitimira's doctoral thesis entitled A Comparative Analysis of the Enforcement of Market Abuse Provisions 354-420.

1 For the purposes of this article, such practices include insider trading (which is the unlawful use of price-sensitive non-public inside information, to conclude transactions in securities to which that information relates by insiders or other persons to the detriment of innocent and other unwitting persons), market manipulation and other market misconduct activities. See related discussion on the regulation of these practices by Huang 2005 Aust Jnl of Corp Law 281-322; Huang 2005 Sec Reg LJ 130-146; Overland 2005 Deakin LR 708, 713-730; Steinberg 2001 U Pa J Int'l Econ L 635, 640-668; Gevurtz 2002 Transnat'l Law 63, 67-78; Gething 1998 C & SLJ 607-618; Goldwasser 1999 ABLR 482-513; Tomasic and Pentony 1989 ANZJ Crim 65-66; Loke 2006 Am J Comp L 123-172; Barnes Stock Market Efficiency 125; Lyon and Du Plessis Law of Insider Trading 159-168.

2 In this article, market manipulation is defined as a practice that interferes or attempts to interfere with the free and fair operation of the financial markets by creating an artificial, false or misleading appearance with respect to the price of, or market for, a security, commodity or financial instrument. For the purposes of this article, such practices include the misuse of material information; the dissemination of false or misleading information; a practice which abnormally or artificially affects, or is likely to affect, the formation of prices or volumes of financial instruments or securities; dark pools and wash trades.

3 For the purposes of this article, such practices include false trading and market rigging, quote stuffing, front running, insider trading, and a failure to continuously disclose price-sensitive information that relates to the relevant financial instruments.

4 The Corporations Act 50 of 2001 (Cth) as amended, hereinafter referred to as the Corporations Act.

5 The Financial Services Reform Act 122 of 2001 (Cth) as amended, hereinafter referred to as the Financial Services Reform Act. Generally see the Corporations Act, s 1041A for market manipulation; s 1041B for false trading and market rigging, including the creation of a false or misleading appearance of active trading; s 1041C for false trading and market rigging, including artificially maintaining a trading price; s 1041D for the dissemination of information about illegal transactions; s 1041E for false or misleading statements; s 1041F for inducing other persons to a deal; s 1041G for dishonest conduct and s 1041H for misleading or deceptive conduct (civil liability only). For a detailed analysis of these provisions, see the discussion that will ensue later under the sub-headings in para 2 and also see Part 7.10 of the Corporations Act. See further Huang 2009 C & SLJ 8-22.

6 Generally see ss 78; 80; 81 and 82 of the Financial Markets Act 19 of 2012, hereinafter referred to as the Financial Markets Act. See Benade et al Entrepreneurial Law 130; Van Deventer 2008 http://www.fsb.co.za/public/marketabuse/FSBReport.pdf 1-5; Myburgh and Davis 2004 http://www.genesis-analytics.com/public/FSBReport.pdf 8-13; also see Chitimira Enforcement of Market Abuse Provisions 354-420; Botha 1991 SA Merc LJ 1-18; Botha 1990 SALJ 504-508; Chitimira Regulation of Insider Trading 137-163; Osode 2000 J Afr L 239; Jooste 2006 SALJ 437, 441-460; Van Deventer 1999 FSB Bulletin 2-3; Luiz 1999 SA Merc LJ 136-151; Luiz 2011 SA Merc LJ 151-172; Beuthin and Luiz Basic Company Law 235-238; Henning and Du Toit 2000 JJS 155-165, for further related historical analysis on the regulation of market manipulation and insider trading in South Africa.

7 In relation to this, the historical analysis and recommendations will be mainly focused on the relevant provisions of the Corporations Act and the Financial Markets Act in Australia and South Africa respectively.

8 Such jurisdictions or countries include the United States of America (USA) and South Africa.

9 Put differently, the fact that the common law prohibition was codified in 1899 could also suggest that the prohibition under the common law pre-dates 1899.

10 See the codification of common law as undertaken in the Australian states of Queensland in 1899, Western Australia in 1902 and Tasmania in 1924. Accordingly, in Victoria and South Australia states, the common law crime principles discouraging inter alia market abuse practices are expressly retained under s 321F(2) of the Crimes Act 6231 of 1958 (Vic) and s 133(2) of the Criminal Law Consolidation Act 2252 of 1935 (SA). In relation to this, it is important to note that market manipulation was historically outlawed as a crime of conspiracy to defraud or deprive other persons of their securities or financial instruments which they own and which they are or might be entitled to own in Australia, the United Kingdom and the USA. Furthermore, in some instances the conspiracies to defraud through market manipulation were treated as a crime only if two or more individuals acted together to commit market manipulation under common law. See R v Aspinall (1876) 1 QBD 730; R v Aspinall (1876) 2 QBD 48 (Court of Appeal); R v De Berenger (1814) 3 M&S 67; Wai Yu-Tsang v R [1992] 1 AC 269; Scott v Metropolitan Police Commissioner [1975] AC 819; Cooke [1986] AC 909. See further Loke 2007 http://goo.gl/YVBTGQ 4-7.

11 See R v De Berenger (1814) 3 M&S 67.

12 See further Fame Decorator Industries Pty Limited v Jeffries (1998) 28 ACSR 58, 16 ACLC 1235.

13 Generally see Fame Decorator Industries Pty Limited v Jeffries (1998) 28 ACSR 58, 16 ACLC 1235; Fenwick v Jeffries Industries Limited (1995) 13 ACLC 1334. Also see Scott v Brown, Doering, McNab & Co [1892] 2 QB 724; Loke 2007 http://goo.gl/YVBTGQ 1-2.

14 The discussion will be focused mainly on the Corporations Legislation Amendment Act 110 of 1990 (Cth), hereinafter referred to as the Corporations Law 1990 and therefore the study of all related Australian securities statutes is beyond the scope of this sub-heading. Consequently, related legislation like the Trade Practices Act 51 of 1974 (Cth) (hereinafter referred to as the Trade Practices Act) as amended by the Trade Practices Legislation Amendment Bill 2005 (Cth), which was passed on 19 October 2006, will be referred to only where necessary.

15 The Securities Industry Act 53 of 1970 (NSW), hereinafter referred to as the Securities Industry Act 1970. See s 70 read with s 72(2).

16 See s 70 read with s 72(2) of the Securities Industry Act 1970.

17 See further the relevant provisions of the Securities Industry (Amendment) Act 11 of 1971 (NSW), hereinafter referred to as the Securities Industry Amendment Act; s 109 of the Securities Industry Act 3 of 1975 (NSW), hereinafter referred to as the Securities Industry Act 1975; s 124 of the Securities Industry Act 66 of 1980 (Cth), hereinafter referred to as the Securities Industry Act 1980 and the Securities Industry (Application of Laws) Act 61 of 1981 (NSW), hereinafter referred to as the Securities Industry Application of Laws Act. Also see Constable 2011 MqJBL 54, 58; see further Armson 2009 http://goo.gl/iDn85l 4-7; Goldwasser 1999 Aust J Leg Hist 149, 166-172, 198; Hart 1979 ABLR 139-140.

18 Ss 999, 1261 of the Corporations Law 1990.

19 Ss 997; 998; 1259 and 1260 read with s 998 of the Corporations Law 1990; also see Huang 2009 C & SLJ 9-10; Baxt, Black and Hanrahan Securities and Financial Services Law 471-472.

20 S 998(3) read with subss (5) and (7), 1260(2) and (3) of the Corporations Law 1990; also see further s 13.6 of the Criminal Code Act 12 of 1995 (Cth), hereinafter referred to as the Criminal Code Act.

21 Generally see s 995 of the Corporations Law 109 of 1989 (Cth), also known as the Corporations Act 1989, hereinafter referred to as the Corporations Law 1989; also see Black 1996 ALJ 987, 997; Trichardt 2003 C & SLJ 75, 83.

22 S 998 of the Corporations Law 1990; also see generally Goldwasser 1998 Aust Jnl of Corp Law 109; Meyer 1986 C & SLJ 92, 95; Armson 2009 Armson 2009 http://goo.gl/iDn85l 6-7; Goldwasser 1999a C & SLJ 44, 47.

23 See s 5.6(1) read with subs (2) of the Criminal Code Act. Also see further Huang 2009 C & SLJ 9-10.

24 See Part 7.10 of the Corporations Act.

25 Front running is an illegal technique that is employed by market participants like brokers to anticipate the effect and impact of upcoming trading transactions on the price of certain securities in order to engage in market manipulation and other illicit trading activities. See Chitimira May 2014 MJSS 60, 61.

26 These changes were introduced by the Financial Services Reform Act, which amended the Corporations Act's market abuse provisions. See further the Revised Explanatory Memorandum to the Financial Services Reform Bill 2001 (Cth), hereinafter referred to as the Revised Explanatory Memorandum. Also see generally related remarks by Longo 2001 https://goo.gl/31VrsC 1-9. See further Huang 2009 C & SLJ 9.

27 See s 1041A read with ss 1041B(1), 1041C, 1041D, 1041E, 1041F, 1041G and 1041H of the Corporations Act. The required fault elements for violating s 1041B(1) have now been established. Intention is the fault element for the physical element for doing or omitting to do an act as stated in that subsection and recklessness is the fault element for having or likely to have the effect of creating or causing the creation of a false or misleading appearance, as stated in that subsection. See s 1041B(1)(1A) of the Corporations Act. Also see generally the Explanatory Memorandum of the Corporations Amendment (No 1) Bill 2010 (Cth), hereinafter referred to as the Corporations Amendment (No 1) Bill Explanatory Memorandum 3.7 and 3.14. It is hoped that this will, in the long run, improve the enforcement of the market abuse prohibition in Australia. See Constable 2011 MqJBL 107; also see generally Huang 2009 C & SLJ 8-10,16-17; Goldwasser 1999b C & SLJ 210; and further Armson 2009 http://goo.gl/iDn85l 2-4, 7-12, 16-17, 4-7.

28 Section 1041A of the Corporations Act.

29 Section 1041A of the Corporations Act; compare with ss 997, 1259 of the Corporations Law 1990.

30 Sections 5.4(4), 5.2 and 5.6(2) read with s 5.6(1) of the Criminal Code Act.

31 This occurs when a person negligently or intentionally employs a scheme, device or artifice which creates or might create and maintain a false or misleading appearance with respect to the market for or price of active trading in any securities or financial instruments on the relevant financial markets.

32 This is usually an unfair and illegal act or practice which is employed by a person or company to manipulate the sale or price of securities or financial instruments inter alia by raising or lowering the price of securities or financial instruments in order to create a false and misleading appearance of active trading in relation to such securities or financial instruments.

33 Section 1041B(1) of the Corporations Act; also see s 1041B(1)(1A) of the same Act, which outlines the fault elements.

34 A wash sale occurs where a person or an associate is both the buyer and seller in the same transaction (selling and repurchasing of the same or substantially the same financial product for the purpose of generating activity and increasing its price). S 1041B(2)(a) read with s 1041B(1) of the Corporations Act; s 1041B(3) of the Corporations Act sets out circumstances in which an acquisition or disposal of financial products does not involve a change in beneficial ownership and s 1041B(4) of the Corporations Act enumerates what a transaction of acquisition or disposal of financial products includes.

35 A matched order occurs where a person and his associate place an order to buy or sell at the same time, for substantially the same number of securities or financial products at substantially the same price. S 1041B(2)(b) read with s 1041B(1) of the Corporations Act. Also see ss 5.2(2), 5.6(2) of the Criminal Code Act, where other physical elements are outlined which are taken into account by the courts or the prosecuting authorities in determining whether the market manipulation offences were committed by the accused persons in question. See paras 3.115, 15.15 of the Supplementary Explanatory Memorandum to the Financial Services Reform Bill 2001 (Cth) (hereinafter referred to as the Supplementary Explanatory Memorandum) and the Revised Explanatory Memorandum respectively. See further Huang 2009 C & SLJ 10.

36 Section 1041C of the Corporations Act.

37 Section 1041D of the Corporations Act.

38 See s 1041D of the Corporations Act. Also see generally Hieronymus 1977 Hofstra L Rev 41, 45; Loke 2007 Aust Jnl of Corp Law 22-50; McCabe 1993 Fordham L Rev 207, 223, which comments on the circumstances that are considered necessary when determining if the activity in question should be deemed unlawful and manipulative.

39 Section 1041E(1)(c) of the Corporations Act.

40 Section 1041E of the Corporations Act, which repealed ss 999 and 1261 of the Corporations Law 1990; also see generally Ministry of Economic Development 2002 https://goo.gl/jxUg0K.

41 Section 1041F of the Corporations Act.

42 In this regard, dishonest means (a) dishonest according to the standards of ordinary people; and (b) known by the person to be dishonest according to the standards of ordinary people. Also see s 1041F(2) read with s 1041G(2) of the Corporations Act.

43 Section 1041F(3) of the Corporations Act. Accordingly, the contravention s 1041F will lead to civil liability despite the fact that it is not necessarily a civil penalty provision; see further the Supplementary Explanatory Memorandum paragraph 3.116.

44 Section 1041G(1) of the Corporations Act, which is treated as a civil penalty provision but nonetheless its contravention may further results in criminal liability on the part of the offenders. Also see the Revised Explanatory Memorandum para 15.19.

45 Section 1041G(2) of the Corporations Act.

46 This criterion was employed in R v Ghosh [1982] 3 WLR 110; R v Ghosh [1982] QB 1053 read with Boggeln v Williams [1978] 1 W LR 873; R v Feely [1973] QB 530; R v Gilks [1972] 1 WLR 1341; R v McIvor [1982] 1 WLR 409; [1982] 1 All ER 491 (CA); also see s 1041G(2) of the Corporations Act.

47 Section 1041H(1) and (2) of the Corporations Act; also see the Revised Explanatory Memorandum paras 15.8-15.10, which stipulates that s 1041H repealed and replaced the former provisions of s 995 of the Corporations Law.

48 See Parts 7.7 and 7.9 of the Financial Services Reform Act; also s 1041H(3) of the Corporations Act; the Revised Explanatory Memorandum para 15.10.

49 See further the Supplementary Explanatory Memorandum paras 3.117, 3.118.

50 Short selling is a practice which involves selling securities or assets such as derivatives by the seller without owning them at the time of the transactions, with the intention of buying them back at a later stage but at a much lower price. S 1020B of the Corporations Act. Also see Chitimira May 2014 MJSS 67-68.

51 For example, short selling and market-stabilisation may be allowed where they are the subject of a declaration by a market operator (for example a stock exchange) as approved for such short selling or market stabilisation purposes. See Chitimira May 2014 MJSS 67-68.

52 Generally see Henning and Du Toit 2000 JJS 155-165.

53 See earlier comments in para 2.1 above.

54 See the related discussion under para 2.2 above.

55 Also see the relevant provisions of the now repealed statutes, the Stock Exchanges Control Act 1 of 1985, hereinafter referred to as the Stock Exchanges Control Act. See s 40 and the Financial Markets Control Act 55 of 1989, hereinafter referred to as the Financial Markets Control Act, see ss 20 -23. Notably, s 1 of the Stock Exchanges Control Act prohibited the market manipulation of securities, which included stocks, shares and debentures, while the relevant provisions of the Financial Markets Control Act prohibited the market manipulation of financial instruments, as defined in s 1, including futures contracts, option contracts and loan stock on a financial market. Also see Cassim 2008 SA Merc LJ 34; Henning & Du Toit 2000 JJS 155-165 & Chitimira 2014 PER Journal 937-965.

56 Under the common law, market manipulation is usually referred to as a crime of "rigging the market". Also see Cassim 2008 SA Merc LJ (Part 1) 34; 40-42; Henning and Du Toit 2000 JJS 155-165.

57 See the related remarks in paras 2.1 and 2.3 above.

58 See ss 78, 80, 81, 82 of the Financial Markets Act and other related provisions under Ch X of the same Act. Also see further Cassim 2008 SA Merc LJ (Part 1) 34-35; Chitimira 2014 PER 937-965.

59 See para 2.3 above.

60 Sections 80, 81 of the Financial Markets Act.

61 In relations to this, it is submitted that the aforesaid definition should expressly apply to all the types and related market manipulation practices such as high frequency trading (a manipulative practice that involves persons like brokers, issuers and financial analysts who act in a proprietary capacity to employ sophisticated computerised algorithmic decision-making systems in order to obtain advantage from some minute discrepancies in the financial markets stock prices and then quickly trade in such stocks in large quantities to gain profit), front running, naked short selling (which occurs when a seller agrees to short sell a security within a stipulated period without taking prior measures to repurchase it at a later stage) and quote stuffing (a manipulative tactic which involves the prompt entering and withdrawing of large stock orders by any person in order to flood the market with quotes that other persons have to process, thereby causing them to lose their fair competitive advantage in such stocks). See Chitimira May 2014 MJSS 61-62, 64, 67-68.

62 See related remarks by Chitimira 2014 PER 964-965.

63 See para 2.3 above.

64 Section 80 of the Financial Markets Act.

65 Section 80(1)(a) and (b) read with subs (2), s 80(3)(a)-(g) read with subss (4) and (5) of the Financial Markets Act; also see Cassim 2008 SA Merc LJ (Part 1) 42-51, 52-60 and a generally related discussion by Chitimira 2014 PER 937-965.

66 Notably, the same position was also enumerated in s 75 of the Securities Services Act 36 of 2004, hereinafter referred to as the Securities Services Act; clause 84 of the Draft Financial Markets Bill, 2011, hereinafter referred to as the Draft Financial Markets Bill, and clause 82 of the Financial Markets Bill [B12-2012], hereinafter referred to as the Financial Markets Bill, 2012 (I have employed the term "clause" to refer to the provisions of both the Draft Financial Markets Bill and the Financial Markets Bill, 2012. In relation to this and for the purposes of this article, the relevant provisions of the afore-said Bills and the now repealed Securities Services Act will be referred to only where necessary for historical comparative analysis).

67 See para 2.3 above.

68 See s 81(1) and (2) read with subs (3). The same status quo was also stipulated in s 76(1) and (2) of the Securities Services Act; clause 85(1) and (2) of the Draft Financial Markets Bill and clause 83 of the Financial Markets Bill, 2012.

69 Section 1041E; also see para 2.3 above.

70 Section 81 of the Financial Markets Act. Notably, a similar approach was also provided under s 76 of the Securities Services Act; clause 85 of the Draft Financial Markets Bill; clause 83 of the Financial Markets Bill, 2012. See further Cassim 2008 SA Merc LJ (Part 2) 178.

71 See para 2.3 above.

72 See generally s 1041E read with s 1041F and also para 2.3 above.

73 Section 81 of the Financial Markets Act.

74 Seemingly, this approach was previously embedded in s 76 of the Securities Services Act; clause 85 of the Draft Financial Markets Bill; clause 83 of the Financial Markets Bill, 2012. See further Cassim 2008 SA Merc LJ (Part 2) 179-180.

75 Section 81(1)(b) of the Financial Markets Act. This prohibition was initially provided in s 76(1)(b) of the Securities Services Act; clause 85(1)(b) of the Draft Financial Markets Bill and clause 83(1)(b) of the Financial Markets Bill, 2012.

76 In other words, the fact that the concealed or omitted fact must be a "material fact" and not just merely any fact suggests that fault elements or an objective test will be established and employed by the relevant courts. S 81(1) of the Financial Markets Act.

77 Section 1041E(1)(c)(ii) of the Corporations Act.

78 Section 81(1) read with subss (2) and (3) of the Financial Markets Act. Likewise, this approach was previously employed in s 76(1)(a) read with (b) of the Securities Services Act; Cassim 2008 SA Merc LJ (Part 2) 181-182. See further clause 85(1)(a) read with (b) of the Draft Financial Markets Bill and clauses 83(1) of the Financial Markets Bill, 2012, which had related provisions.

79 See further Huang 2009 C & SLJ 10; Cassim 2008 SA Merc LJ (Part 2) 181-182.

80 Sections 1041D and 1041G of the Corporations Act. Also see para 2.3 above.

81 See ss 80 and 81 of the Financial Markets Act. This was also the position under ss 75 and 76 of the Securities Services Act; clauses 84 and 85 of the Draft Financial Markets Bill and clauses 82 and 83 of the Financial Markets Bill, 2012.

82 Cassim 2008 SA Merc LJ (Part 2) 184-185.

83 See s 80(4) of the Financial Markets Act. Similar provisions were previously outlined in s 75(3)(i) of the Securities Services Act; clause 84(3)(i) of the Draft Financial Markets Bill; clause 82(3)(i) of the Financial Markets Bill, 2012; also see Cassim 2008 SA Merc LJ (Part 2) 184-185; the Johannesburg Stock Exchange Limited (the JSE) Listing Requirements, which outlines some obligations or requirements that must be complied with by the issuers of securities before engaging in price-stabilisation in South Africa. See further Rule 5.99 of the JSE Listing Requirements, which stipulates the various circumstances and conditions under which the price-stabilisation measures will be permitted by the JSE and the Financial Markets Act.

84 Section 1317S of the Corporations Act. Also see Cassim 2008 SA Merc LJ (Part 2) 184-185, 189.

85 See ss 80 and 81 of the Financial Markets Act. It appears that the same approach was previously employed in ss 75 and 76 of the Securities Services Act; clauses 84 and 85 of the Draft Financial Markets Bill; clauses 82 and 83 of the Financial Markets Bill, 2012; also see Cassim 2008 SA Merc LJ (Part 2) 198-199.

86 Section 1041I provides for civil liability against any person who violates s 1041E to s 1041H of the Corporations Act.

87 Comino 2006 ABLR 428, 430-446; Cassim 2008 SA Merc LJ (Part 2) 192; see further Ford, Austin and Ramsay Ford's Principles Looseleaf service update number 43, 9/2004 9406 [9.690] read with 9/2004 9338 [9.605].

88 Section 1308A of the Corporations Act; also see Comino 2006 ABLR 430-446.

89 Comino 2006 ABLR 429-446.

90 Section 1316 of the Corporations Act.

91 Section 1041A to s 1041G read with s 1311of the Corporations Act.

92 Sections 1311; 1312 and Schedule 3 item 309C of the Corporations Act. Also see s 4AA of the Crimes Act 12 of 1914 (Cth) as amended, hereinafter referred to as the Crimes Act.

93 Corporations Amendment (No 1) Act 131 of 2010 (Cth), hereinafter referred to as the Corporations Amendment (No 1) Act.

94 See the Corporations Amendment (No 1) Bill Explanatory Memorandum 3.11.

95 Generally see the Corporations Amendment (No 1) Bill Explanatory Memorandum 3.11; also see Bowen 2010 http://goo.gl/bLM7eN; Constable 2011 MqJBL 107, for further details regarding these penalties.

96 See Bowen 2010 http://goo.gl/7WXkYS; also see further the Corporations Amendment (No 1) Bill Explanatory Memorandum 3.11 and see further analysis on these new sanctions by Ewart and Tobias 2010 http://goo.gl/mJBDdj; Bowen 2010 http://goo.gl/bLM7eN.

97 Austin 2009 http://goo.gl/3t76k5; also see a generally related article by Austin 2008 http://www.ssrn.com/abstract=1288970.

98 Austin 2009 http://goo.gl/3t76k5.

99 Section 1317N-s 1317P read with ss 1041I, 1317E-1317HA and 206C of the Corporations Act.

100 See related discussion above.

101 See s 109(a) read with ss 80 and 81 of the Financial Markets Act, which directly outlaws any conduct which constitutes a market manipulation offence or which may constitute such an offence in South Africa. Also see similar comments in Chitimira 2014 Speculum Juris 108, 119-124; Cassim 2008 SA Merc LJ (Part 2) 193-195.

102 See the related comments above.

103 See s 109(a) of the Financial Markets Act.

104 See Chitimira March 2014 MJSS 47, 53-54; Cassim 2008 SA Merc LJ (Part 2) 194.

105 See the related comments above.

106 In the light of this it is submitted that the Financial Markets Act should be amended to enact a specific provision which stipulates that an individual who is convicted of an offence relating to insider trading or market manipulation will be liable to a fine of up to R85 million, or to imprisonment for a period of not more than 25 years, or to both such a fine and imprisonment.

107 It is further submitted that the Financial Markets Act should be amended to enact a specific provision which stipulates that a juristic person or company that is convicted of an offence relating to insider trading or market manipulation will be liable to a maximum fine of R750 million, or to six times the profit made or loss avoided, or 20% of the company or juristic person's annual turnover during the period in which the offence was committed, whichever is greater.

108 See the related remarks by Chitimira 2014 Speculum Juris 119-124; Chitimira and Lawack 2012 Obiter 549-553.

109 See the related remarks on the powers of the Commonwealth DPP above.

110 See s 84(10) of the Financial Markets Act. Also see similar comments by Chitimira 2014 Speculum Juris 119-124; Luiz 2011 SA Merc LJ 151-172; Cassim 2008 SA Merc LJ (Part 2) 193-195.

111 Generally see s 84(10) of the Financial Markets Act. It appears that this approach was directly borrowed from previous provisions such as s 82(9) of the Securities Services Act; clause 91(9) of the Draft Financial Markets Bill and clause 86(10) of the Financial Markets Bill, 2012. See further Luiz 2011 SA Merc LJ 151-172; Chitimira 2014 Speculum Juris 119-124; Cassim 2008 SA Merc LJ (Part 2) 193-195, for related discussions on the enforcement of the market abuse ban by the FSB and the DPP.

112 See the similar comments above.

113 See s 82 of the Financial Markets Act.

114 Apparently, such proceedings may be instituted by the FSB only if the DPP refuses to prosecute the market manipulation cases in question. See s 84(10) of the Financial Markets Act.

115 See the related comments in Chitimira March 2014 MJSS 52-54; Chitimira 2014 Speculum Juris 119-124; Chitimira and Lawack 2012 Obiter 549-553.

116 Samuel 2005 http://www.accc.gov.au/Samuel_Paper_2005.htm; Constable 2011 MqJBL 107-110.

117 Generally see some related comments above and see further Samuel 2005 http://www.accc.gov.au/Samuel_Paper_2005.htm; Constable 2011 MqJBL 107-110.

118 See the relevant market manipulation enforcement statistics by the FSB 2014 https://goo.gl/RPpjMC, which show that from the period between 2006 and 2014, relatively few criminal cases of market manipulation were successfully investigated and prosecuted by both the FSB and the relevant courts. Also see the related comments on the enforcement of the market abuse ban by Chanetsa Business Report page number unknown; Blincoe 2001 http://goo.gl/A4Wje7, where two Datatec directors, Jens Montanana and Robin Rindel were reportedly fined about R1 million each for insider trading by the FSB; Barron 2014 http://goo.gl/RPqhWq, where Greg Blank was reportedly sentenced to eight years imprisonment for stock market-related fraud and front running in 1992. See further the related comments by Chitimira March 2014 MJSS 52-54; Chitimira 2014 Speculum Juris 119-124; generally see Chitimira and Lawack 2012 Obiter 549-553.

119 R v Adler [2005] NSWSC 274; R v Adler [2005] 53 ACSR 471; Adler v R (2006) 57 ACSR 675; R v Williams [2005] NSWSC 315; R v Williams (2005) 216 ALR 113; also see Comino 2006 ABLR 440-446.

120 Generally see the related enforcement actions by the FSB in 2014 (FSB 2014 https://goo.gl/RPpjMC), which shows that from the period between 2006 and 2014 relatively few criminal cases of market manipulation were successfully investigated and prosecuted by the FSB and the relevant courts. Also see the related analysis by Chitimira March 2014 MJSS 52-54; Chitimira 2014 Speculum Juris 119-124; generally see Chitimira and Lawack 2012 Obiter 549-553.

121 Sections 1041A-1041E of the Corporations Act.

122 Sections 1041F-1041H of the Corporations Act. The civil penalty provisions were first introduced in 1993 and are now contained in Part 9.4B of the Corporations Act.

123 Sections 1317E-1317HA read with s 206C of the Corporations Act.

124 Sections 674-675 of the Corporations Act, which relates to continuous disclosure requirements in Australia; also see Longo 2001 https://goo.gl/31VrsC.

125 The financial services civil penalties apply to any person who violates the market misconduct provisions while the corporation or scheme civil penalties apply to any contravention in relation to the continuous disclosure provisions. See ss 1317E(1)(ja), 1317J(3A) and 1041I of the Corporations Act.

126 Sections 1317E-1317HA read with ss 206C, 1317J(1) and (2) of the Corporations Act.

127 Sections 1317E-1317HA, s 206C of the Corporations Act. Also see related analysis by Austin 2009 http://goo.gl/3t76k5 3; and further comments on the recently introduced new market abuse penalties by Bowen 2010 http://goo.gl/bLM7eN.

128 Constable 2011 MqJBL 107 & generally see paragraph 3.1 above.

129 See s 1317E to s 1317HA & s 206C of the Corporations Act. Also see Bowen 2010 http://goo.gl/bLM7eN.

130 Section 1317E(1) of the Corporations Act. Also see further Cassim 2008 SA Merc LJ (Part 2) 192.

131 See Welsh 2004 Aust Jnl of Corp Law 175, 187; Mann 1992 Yale LJ 1795, 1845.

132 ASIC v Plymin [2003] VSC 123; ASIC v Plymin (2003) 46 ACSR 126; ASIC v Plymin (2003) 21 ACLC 700, where the ASIC obtained banning orders, pecuniary penalties and compensation orders against Bernard Plymin, John Elliot and William Harrison in relation to their contravention of the market misconduct provisions, as directors of Water Wheel and its subsidiary Water Wheel Mills Pty Limited. Also see Comino 2005 Aust Jnl of Corp Law 48-67.

133 However, where any financial services civil provision was violated, the courts or the ASIC may impose pecuniary penalties up to Aus $200 000 on the perpetrators of such offences. S 1317EA of the Corporations Act read with s 1317FA of the same Act.

134 Section 1317J(3A) of the Corporations Act.

135 Section 1317E(1) of the Corporations Act.

136 Section 1041I of the Corporations Act read with s 1317S of the same Act. The Commonwealth DPP usually consults with the ASIC to determine whether to bring civil penalty actions or criminal proceedings in relation to any market abuse violations.

137 Middleton 2003 C & SLJ 507-529.

138 Constable 2011 MqJBL 92-96; Longo 2001 Keeping Good Companies 635; Andrews 2003 Am J Comp L 137, 146; Huang 2009 C & SLJ 12-15; Gilligan, Bird and Ramsay 1999 UNSWLJ 417, 424; Goldwasser 1998 Aust Jnl of Corp Law 111. See further Donald v ASIC (2001) 38 ACSR 10; Donald v ASIC [2001] AATA 366, the accused was found guilty of market manipulating the price relating to the affected shares (financial products). For further discussion on the theory, history and application of civil penalties in Australia, see Gething 1996 ABLR 375-390; Bird 1996 C & SLJ 405-427.

139 Financial Institutions (Protection of Funds) Act 28 of 2001 as amended, hereinafter referred to as the Protection of Funds Act.

140 For instance, see s 82 of the Financial Markets Act, which provides that administrative sanctions as determined by the Enforcement Committee (EC) will be paid to prejudiced persons only in cases of insider trading, and there are no other provisions under Ch X entitled "Market Abuse" which expressly empower the courts to impose administrative sanctions against the market manipulation offenders. It appears that a civil remedy which was mainly enforced by the FSB under s 77 read with s 82 of the Securities Services Act has now been replaced by administrative sanctions. In relation to this, the Financial Markets Act now mainly provides for an administrative sanction that may be imposed on the market abuse offenders by the EC. See s 82 read with s 84 of the Financial Markets Act. This could suggest that the EC may now impose administrative sanctions upon the market manipulation offenders after referrals in terms of s 99 of the Financial Markets Act read with s 6A(2) of the Protection of Funds Act, subject to appeals in terms of s 6F read with s 6B to s 6I of the same Act. See further Luiz 2011 SA Merc LJ 151-172; Chitimira 2014 Speculum Juris 119-124.

141 The author submits that the Financial Markets Act's market manipulation provisions are relatively comparable to similar provisions in other jurisdictions such as the USA, the UK and the European Union (EU).

142 Ss 80 and 81 read with s 109(a) of the Financial Markets Act. Also see generally Cassim 2008 SA Merc LJ (Part 1) 33-36; Chitimira 2014 Speculum Juris 119-124; Chitimira March 2014 MJSS 53-54.

143 See the related Australian discussion above.

144 See ss 80 and 81 of the Financial Markets Act, which do not provide for any civil penalties for market manipulation.

145 Sections 80 and 81 of the Financial Markets Act. This flaw was also present in ss 75 and 76 of the Securities Services Act;. Also see Cassim 2008 SA Merc LJ (Part 2) 191-193. The author submits that the Financial Markets Act should have considered the Australians' Corporations Act approach, of not relying on criminal and administrative penalties alone for market manipulation. See further Cassim 2008 SA Merc LJ (Part 2) 191-195; 198-199.

146 See the earlier Australian discussion above.

147 Section 1041I of the Corporations Act. Also see the earlier Australian discussion above and the related comments in para 3.3 below.

148 See ss 80 and 81 of the Financial Markets Act, which do not classify or provide any distinct civil remedies and civil penalties for market manipulation. Also see the related comments by Chitimira March 2014 MJSS 53-54.

149 Section 1041A-1041E of the Corporations Act.

150 Section 1041F-1041H of the Corporations Act.

151 Section 1317E-1317HA, 206C read with s 1325 of the Corporations Act.

152 Section 1317J(1) and (2) of the Corporations Act read with s 1317E(1)(ja) of the same Act. Also see Austin 2009 http://goo.gl/3t76k5 3.

153 Section1317J(3A) of the Corporations Act read with ss 1324A, 1324B, 1325(2) of the same Act, which deals with injunctive relief during prosecutions, orders for the disclosure of relevant information, and compensatory orders.

154 Sections 1041I and 1317HA of the Corporations Act. This is usually referred to as a private right of action or piggy-back civil rights against the offenders, who are then required to compensate the claimants or the affected investors.

155 See the related comments in para 3.2 above.

156 Section 1317E(1) read with s 1041I of the Corporations Act. Also see Cassim 2008 SA Merc LJ (Part 2) 192.

157 Cassim 2008 SA Merc LJ (Part 2) 192; see further the related comments and analysis by Morrell 2006 http://www.takeovers.govnt.nz/speeches/km_290506.pdf 11-12.

158 Morrell 2006 http://www.takeovers.govnt.nz/speeches/km_290506.pdf 12.

159 Sections 1323, 1324 of the Corporations Act.

160 See generally s 1325 read with ss 1323 and 1324 of the Corporations Act. Also see Austin 2009 http://goo.gl/3t76k5 3.

161 For more details regarding the role of the ASX Disciplinary Tribunal, see ASX 2010 http://goo.gl/6DP709; also see generally the ASX 2010 http://goo.gl/sOR5t4 Rule 28.3.1, for related analysis regarding the ASX Rules relating to the functions of the ASX Disciplinary Tribunal and further related remarks by Austin 2009 http://goo.gl/3t76k5 5, 7.

162 Section 920B of the Corporations Act.

163 Section 1041A-1041H of the Corporations Act; Constable 2011 MqJBL 96-99.

164 Section 920B(2) of the Corporations Act.

165 Section 920A(1) of the Corporations Act; ASIC v Adler [2003] NSWCA 131; ASIC v Adler (2003) 46 ACSR 504; ASIC v Adler (2003) 21 ACLC 1810, where Adler was disqualified for 20 years and ordered to pay approximately Aus $7million compensation jointly with Adler Corporation Pty Limited and Williams. In addition, Adler was further ordered to pay Aus $450 000 pecuniary penalties. See further the related articles by Main AFR 6; Johnston AFR 1, where the ASIC successfully requested and imposed on Vizard, a five-year ban on managing companies and about Aus $390 000 compensatory and pecuniary penalties.

166 Section 1317J(3A) read with ss 1317J(1) and (2) of the Corporations Act; Goldwasser 1999b C & SLJ 210; Longo 2001 https://goo.gl/31VrsC 41.

167 Longo 2001 https://goo.gl/31VrsC 21, 23; Goldwasser 1999b C & SLJ 210.

168 See the related remarks in para 3.2 above.

169 Sections 80 and 81 read with s 109(a) of the Financial Markets Act. Conspicuously, this flaw was previously enshrined in ss 75 and 77 read with s 115(a) of the Securities Services Act. See further Cassim 2008 SA Merc LJ (Part 1) 33-36; Chitimira 2014 Speculum Juris 119-124; Chitimira March 2014 MJSS 53-54.

170 See the related discussions by Luiz 2002 JBL 183; Henning and Du Toit 2000 Company Lawyer 29-36; Cassim 2008 SA Merc LJ (Part 2) 192. Also see Chitimira March 2014 MJSS 53-54, for further related analysis.

171 See further Henning and Du Toit 2000 Company Lawyer 29-36, for a related discussion.

172 See s 6D read with ss 6A, 6B, 6C, 6E, 6F and 6G of the Protection of Funds Act; see further Cassim 2008 SA Merc LJ (Part 2) 192, 195; also see Chitimira 2014 Speculum Juris 119-124; Chitimira March 2014 MJSS 52-56.

173 See the related comments above.

174 Put differently, it is merely stated that the FSB may, by notice on its official website or by means of other appropriate public media, publish any outcome, status or details of market abuse investigations if such publication is in the public interest. See s 84(2)(e) read with ss 78, 80, 81 and 82 of the Financial Markets Act. Also see similar remarks in Chitimira and Lawack 2013 Obiter 200-217; Chitimira 2014 Speculum Juris 108-124.

175 This could have contributed in part to the inconsistent enforcement of the market manipulation ban in South Africa. See the FSB Annual Report 2011 99-101 and the FSB Annual Report 2013 128-130, for related comments on the new and completed investigations, related issues on administrative penalties and appeals of market abuse cases in 2011 and 2013 respectively. In relation to this, it is also stated that the Directorate of Market Abuse (DMA) is currently investigating 21 listed companies for market manipulation and other market abuse activities. However, notwithstanding all these commendable efforts to combat market manipulation and other illicit market abuse practices, only 337 cases of market abuse have been investigated in South Africa from 1999 to date. Moreover, about 259 of these cases were closed because there was insufficient or no evidence that the relevant market abuse provisions had been contravened. Consequently, about R95 million damages and penalties were recovered from the offenders in only 72 cases of market abuse which were successfully investigated and settled through the FSB during the same period. See the DMA 2014 FSB Bulletin 8.

176 See the related comments above and a similar discussion in para 3.2 above.

177 See s 6D read with ss 6A, 6B, 6C, 6E; 6F and 6G of the Protection of Funds Act; see further Cassim 2008 SA Merc LJ (Part 2) 192, 195; also see Chitimira 2014 Speculum Juris 119-124; Chitimira March 2014 MJSS 52-56.

178 S 82 read with s 99 of the Financial Markets Act; s 6A(2) of the Protection of Funds Act. See further related analysis by Cassim 2008 SA Merc LJ (Part 2) 195; Luiz 2011 SA Merc LJ 151-172; Chitimira 2014 Speculum Juris 119-124. Also see similar remarks in para 3.2 above.

179 See the historical analysis and other relevant discussions in the sub-headings under para 2 above.

180 Generally see Henning and Du Toit 2000 JJS 155-165.

181 See the earlier comments in paras 2.1 and 2.4 above.

182 For instance, criminal and administrative penalties are used to discourage market manipulation in both South Africa and Australia. Moreover, the Commonwealth DPP and the DPP have the main prerogative to institute criminal proceedings against market manipulation offenders in Australia and South Africa respectively. See the related discussions in paras 3.1-3.3 above.

183 See the related discussions in paras 2.1-2.4, 3.1-3.3 above.

184 See the related comments in paras 2.3 and 2.4 above.

185 See the related remarks in para 3.1 above.

186 See the discussion in para 3.1 above and similar remarks by Chitimira March 2014 MJSS 53-56; Chitimira 2014 Speculum Juris 119-124; Chitimira & Lawack 2012 Obiter 548-553.

187 See the related discussion in para 3.1 above.

188 See s 77 of the Securities Services Act.

189 See the related discussions in paras 3.1-3.3 above.

190 See Part 7.10 of the Corporations Act. Also see para 2.3 for further analysis of the prohibition on market manipulation and other market misconduct practices under the Corporations Act.

191 See the related comments in para 2.4 above.


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