Part H Governance and ethical issues relating to business 22: Fraudulent and criminal behaviour 3453 Market abuse
Market abuse relates to behaviour which amounts to abuse of a person's position regarding the stock
market.Market abuse is behaviour which satisfies one or more of the prescribed conditions likely to be regarded
as a failure on the part of the person or persons concerned to observe the standard of behaviour
reasonably expected of a person in their position in relation to the market.The offence of market abuse under the Financial Services and Markets Act 2000 complements legislation
covering insider dealing by providing a civil law alternative. The FSA has issued a Code of Market
Conduct, which applies to any person dealing in certain investments on recognised exchanges and which
does not require proof of intent to abuse a market.
The FSA has statutory civil powers to impose unlimited fines for the offence of market abuse. It also has
statutory powers to require information, and requires anyone to co-operate with investigations into market
abuse.
Market abuse is often connected with activities such as recklessly making a statement or forecast that is
misleading, false or deceptive, or engaging in a misleading course of conduct for the purpose of
inducing another person to exercise or refrain from exercising rights in relation to investments.3.1 Examples of market abuse
The following are other examples of behaviour that would constitute market abuse.3.1.1 Misuse of information
This is any behaviour by an individual that is based on information that is not publically available, but if it
was, it would influence an investor’s decision. For example, a person who buys shares in a company that
they know is a takeover target of their employer before a general disclosure of the proposed takeover is
made.3.1.2 Manipulating transactions
This behaviour involves interfering with the normal process of share prices moving up and down in
accordance with supply and demand for the shares. For example an individual who trades, or places
orders to trade, that create a misleading impression of the supply or demand of securities that has the
effect of raising the price of the investment to an abnormal or artificial level.3.1.3 Manipulating devices
This behaviour is the same as manipulating transactions except that the trading is followed by the creation
of false statements so that other investors make incorrect trading decisions. For example an individual
buys a large number of shares to artificially raise the share price and then makes false statements to the
market that encourage other investors to buy the shares, driving the price up further.3.1.4 Market distortion
This is any behaviour that interferes with the normal process of market prices moving up and down in
accordance with supply and demand. For example, a Chief Executive Officer who increases the activities of
their business in order to make the company appear busier than it actually is. This improves the image and
prospects of the business and suggest that a share price increase is imminent, encouraging investors to
buy shares.Key term
FAST FORWARD