The Law of Corporate Finance: General Principles and EU Law: Volume III: Funding, Exit, Takeovers

214 5 Equity and Shareholders’ Capital

Information-related actions

Purchasing a financial instrument for one’s own account before recommending it to oth-

ers and then selling it at a profit on the rise in the price following the recommendation

(“scalping”).^390

Spreading false rumours to induce buying or selling by others.

Making untrue statements of material facts.

Non-disclosure of material facts or material interests.

Directive 2003/124/EC sets out a non-exclusive list of non-exhaustive signals
which should be taken into account when transactions or orders to trade are exam-
ined by market participants and competent authorities.^391
On the other hand, a CERS Guidance identifies accepted market practices.^392
An important defence to a finding of market manipulation applies where the per-
son establishes that: his reasons were legitimate; and the transactions or orders to
trade conform to accepted market practices on the regulated market concerned.
This can raise difficult questions of fact and proof.^393
Effect on share buybacks and stabilisation. The general prohibition of insider
trading and market manipulation could, in principle, cover share buybacks (inside
information) and the stabilisation of share price (market manipulation). Many
forms of share buybacks and price stabilisation are nevertheless regarded as ac-
ceptable forms of market behavior. There is an exemption for these two forms of
market behaviour if certain conditions are met.
According to the Market Abuse Directive, the prohibition of market abuse will
not apply to trading in own shares in buy-back programmes or to the stabilisation
of a financial instrument “provided such trading is carried out in accordance with
implementing measures adopted in accordance with the procedure laid down in
Article 17(2)”.^394 The Commission has taken those “implementing measures”. A
Commission Regulation sets out in detail how share buyback programmes and
price stabilisation can be compatible with the Market Abuse Directive.^395

There are similar rules in the US. Rule 10b-18 under the Securities Exchange Act of 1934
provides issuers with a qualified safe harbour from liability for market manipulation when

(^390) For an example of scalping in Germany, see BGHSt 48, 373 = NJW 2004, 302.
(^391) Articles 4–5 of Directive 2003/124/EC.
(^392) CESR, Market Abuse Directive. Level 3 – first set of CESR guidance and information
on the common operation of the Directive (May 2005).
(^393) Moloney N, EC Securities Law. OUP, Oxford (2008) p 986.
(^394) Article 8 of Directive 2003/6/EC (Directive on market abuse).
(^395) Regulation 2273/2003 implementing Directive 2003/6/EC as regards exemptions for
buy-back programmes and stabilisation of financial instruments.