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


The prohibition of market manipulation under the Corporations Act



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2.3 The prohibition of market manipulation under the Corporations Act

Market manipulation and other related market misconduct activities are currently prohibited in the Corporations Act.24 In addition, the scope of application of the market manipulation prohibition is now broadly extended to other related activities such as market rigging, front running,25 insider trading and a failure to continuously disclose price-sensitive information that relates to the relevant financial instruments.26 More importantly, among the major amendments made to the Corporations Act by the Financial Services Reform Act is the removal, on the part of the prosecution, of the explicit requirement of proving the existence of intent from the wording of the market manipulation and other related provisions before imputing any liability to the accused offenders.27 Furthermore, all persons are prohibited from carrying out transactions which have or are likely to have the effect of creating an artificial price for trading in financial products or maintaining at an artificial level a price for trading in the products listed on a financial market in Australia.28 As stated above, the current market manipulation provisions dispense with the requirement of proving the intention to induce others to sell, buy or subscribe to the affected securities or financial products before imputing any liability on the accused persons.29 Put simply, the key issue now is whether the price of certain financial products is artificial or misleading. Thus, the focus is now on the effect of the market manipulative conduct in relation to the affected financial product rather than on the intention30 of the trader or the person involved.

In addition, false trading,31 market rigging32 and the creation of a false or misleading appearance of active trading in a financial product or with respect to the market for or the price for trading in a financial product are expressly prohibited under the Corporations Act.33 In addition, what may constitute a false or misleading appearance of active trading is outlined in the so-called deeming provisions concerning wash sales34 and matched orders.35 Likewise, the carrying out of fictitious transactions, which have the effect of maintaining, fluctuating, inflating or depressing the price for trading in the financial products on the relevant financial markets in Australia is prohibited.36

The dissemination of information about illegal transactions is also prohibited in the Corporations Act.37 In other words, all persons are prohibited from disseminating any statement or information to the effect that the price for trading in a financial product on the relevant markets will rise, fall or be maintained, or is likely to rise, fall or be maintained.38 Similarly, the reckless or intentional39 making or dissemination of a statement or information that is false or misleading materially and which is likely to induce other persons to deal in financial products or to affect the price of financial products is outlawed in Australia.40

The Corporations Act further prohibits any person from inducing others to unlawfully deal in the relevant financial products.41 Moreover, this provision contains a definition of the term "dishonest".42 This prohibition on "inducing others" is now extended to conduct such as applying to become a standard employer sponsor of a superannuation entity and permitting a person to become a standard employer sponsor of a superannuation entity.43 The Corporations Act prohibits any person, in the course of carrying on a financial services business in Australia, from engaging in dishonest conduct in relation to a financial product or service.44 Dishonest conduct is defined to mean dishonest according to the standards of ordinary people, including conduct known by any person to be dishonest according to the standards of ordinary people.45 This definition seems to contain both subjective and objective elements which must be proved by the prosecution in determining if the conduct in question will be dishonest as contemplated above.46

Moreover, conduct in relation to a financial product or service that is misleading or deceptive or likely to mislead or deceive other persons with respect to certain financial products is broadly prohibited.47 However, this prohibition does not apply to misleading or deceptive takeover, compulsory acquisition and fund raising documents or disclosure documents or statements, as defined in the Financial Services Reform Act.48 However, the prohibition on misleading or deceptive conduct may apply: (a) to applying to become a standard employer sponsor of a superannuation entity, (b) to permitting a person to become a standard employer sponsor of a superannuation entity, (c) to a trustee of a superannuation entity's dealing with the beneficiary of that entity as such beneficiary, and (d) to a trustee of a superannuation entity's dealing with a standard employer sponsor.49

Other activities that are related to market manipulation such as short selling50 and market stabilisation are also outlawed in the Corporations Act. Notwithstanding this general prohibition, short selling and market stabilisation may only be permitted under certain requirements as stipulated in the Corporations Act.51



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