A good functioning of the financial markets is essential for the trust of citizens in the financial system and for economic growth. Therefore, a framework was developed at European Union level to prohibit market abuse.

What is Market Abuse?

Market abuse covers two different behaviors that are prohibited by Regulation 596/2014 of 16 April 2014 on Market Abuse, namely insider trading and market manipulation.

Insider trading is the trading of a company’s securities by individuals with access to confidential or material non-public information about the company. For example, in the context of negotiations for Mergers and Acquisitions, insiders should be made aware of their obligations.

Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and influence the value of a security.

Which behavior is considered as Insider Trading and is prohibited?

A person shall not :

• engage or attempt to engage in insider dealing;
• recommend that another person engage in insider dealing or induce another person to engage in insider dealing; or

• unlawfully disclose inside information.

Which behavior is considered as Market manipulation and is prohibited?

Some examples of activities that can be considered Market manipulation and are prohibited :

1. Entering into a transaction, placing an order to trade or any other behaviour which :

• gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances; or
• secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level.

2. Entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances, which employs a fictitious device or any other form of deception or contrivance;

3. Disseminating information through the media, including the internet, or by any other means, which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances or secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level, including the dissemination of rumours, where the person who made the dissemination knew, or ought to have known, that the information was false or misleading;

Do you want to learn more about Market Abuse?

If you are interested in learning more about Market Abuse in general, then do not hesitate to contact us.

If you want to learn more about mitigating the risks of Market Abuse in Mergers and Acquisitions, then check out our online traing on Legal M&A.