Market Manipulation Defence and Investigations
Market manipulation is an ever-evolving area. The changing nature and increased globalisation of markets mean that the scope for manipulation, and the possibility of being accused of it, are also subject to variation.
That is why it is important for anyone facing such accusations to seek representation from those with in-depth market knowledge and experience of dealing with all the regulatory agencies that oversee the markets and impose criminal and civil penalties.
Rahman Ravelli specialises in guiding traders, investors and financial firms through the vast amounts of market manipulation regulation in two of the world’s largest and most active markets: the United States and the United Kingdom. Our cross-border team has vast experience of representing clients facing scrutiny or legal action from these countries’ primary market regulators, including the CFTC, SEC, DOJ, SFO, and FCA.
We also routinely advise clients involved in internal investigations related to potential market-related misconduct. Our aggressive approach to market manipulation matters often involves delving deep into the conduct at issue and crafting a compelling explanation as to why no laws or regulations were violated.
Defining Market Manipulation
In addition to facilitating the exchange of stocks, currencies, futures and other assets between buyers and sellers, securities markets allow traders to communicate their subjective views to each other about a particular security’s price. By centrally aggregating the pricing opinions of thousands or even millions of individual traders and investors, securities markets allow buyers and sellers to reach a consensus on an asset’s current price.
In this way, markets allow an asset’s price to be “discovered” through the transmission of the prices at which various buyers and sellers are willing to transact. This, in turn, presumably reflects information that those buyers and sellers may have about an asset’s value. For a market’s price discovery mechanism to function properly, investors must have faith in the integrity of the pricing information transmitted by their fellow market participants.
Within this framework, market manipulation can be understood as any act which “obstructs the operation of the markets as indices of real value.” While this concept may be relatively easy to grasp in theory, courts and regulators have struggled to define exactly what separates lawful from unlawful market conduct.
What complicates matters is the fact that the means of engaging in potentially manipulative conduct are rarely constant. The increasing interconnectedness of global markets and the involvement of algorithmic traders expand the opportunities for market manipulation, making detecting and investigating it more difficult. For example, it is often the case that assets whose prices are manipulated may be traded on one market or in one jurisdiction while the people who are responsible for the manipulation may be located elsewhere.
The Need to be Proactive
As regulators seek to keep pace with what can be considered a “moving target’’, financial institutions, traders and investors risk having their strategies - even those that might be commonplace - called into question after the fact. One need look no further than the recent FX, Libor and spoofing cases for examples of widespread market practices being targeted, resulting in massive financial penalties and criminal prosecutions.
To avoid such problems with law enforcement, it is essential for market participants and compliance professionals to be proactive. They must ensure they remain fully up to speed regarding all aspects of the regulatory frameworks that apply in each of the jurisdictions in which they, their companies or their clients are active.
If you would like to speak to our specialist team, we can be contacted on: +44 (0)203 947 1539.