The Mechanics and Regulation of Market Abuse A Legal and Economic Analysis

This book offers an interdisciplinary analysis of market manipulation and insider dealing, together comprising the offence of market abuse. It examines the mechanics of market abuse and the means for its perpetration in modern financial markets, providing a critical analysis of the legal and regulatory framework for dealing with market abuse in the UK, and of the emerging EU regime. In this context, it evaluates the potential deterrent benefits of civil law remedies.

Economic theory indicates that financial markets play a prominent role to the efficient allocation of resources in the modern world. Financial markets can fulfil this role if they enjoy the confidence of investors and are free of abuse. The financial frauds associated with the collapse of Enron and the major crises in world leading corporations such as WorldCom, Adelphia, Tyco, and the 'Wall Street financial scandals' have shown that fraud, manipulation, and insider dealing retain a catastrophic presence in modern financial markets. Proper deterrence of market abuse is necessary not only for the effective operation of modern financial markets, but also for regaining investor confidence. This book analyses the mechanics and regulation of two of the most harmful market practices in the modern financial world: insider dealing and market manipulation, which together comprise the offence of market abuse. Avgouleas examines the UK and EC regimes from an interdisciplinary perspective, also making extensive and critical use of US case law. He emphasizes the economic analysis of anti-fraud manipulation regulations and their effects upon market welfare and explores the possible deterrent benefits of civil law remedies.

PART I: THE ECONOMIC ANALYSIS OF MARKET ABUSE; CHAPTER 1: INTRODUCTION; 1. The Importance of Open Markets Free of Abuse; 2. A Modern Study of Market Abuse; 3. Scope and structure; CHAPTER 2: MODERN FINANCIAL MARKETS AND FINANCE THEORY; 1. Introduction; 2. The Modern Market Landscape; 3. Modern and 'Post-modern' Finance Theory; 4. Bubbles, Manias, Cognition and Herding; 5. Concluding Remarks; CHAPTER THREE: DECONSTRUCTING AND RECONCEPTUALIZING MARKET ABUSE; 1. Introduction; 2. The Mechanics of Insider Dealing; 3. Corporate Fraud, Governance Failures, 'Bubbles' and Market Abuse: Behavioural Transmissions and Causal Linkages; 4. Concluding Remarks; CHAPTER FOUR: THE MECHANICS OF MARKET MANIPULATION; 1. Introduction; 2. The Mechanics of Market Manipulation; 3. Market Manipulation, Species, Devices and Techniques; 4. Concluding Remarks; CHAPTER 5: THE REGULATION OF MARKET ABUSE; 1. Introduction; 2. Theories of Regulation and Financial Market Regulation; 3. Mandatory Disclosure; 4. Market Transparency and the Liquidity Trade Off; 5. Insider Dealing: Crime and Punishment?; 6. The Regulation (Prohibition) of Market Manipulation; 7. Market Manipulation and Exchange Self-Regulation: A Critical Evaluation; 8. Concluding Remarks; PART II: THE EU AND UK MARKET ABUSE REGIMES; CHAPTER 6: THE EMERGING EU REGIME FOR THE REGULATION OF MARKET ABUSE; 1. Introduction; 2. The Evolution of EC Securities Regulation; 3. The Market Abuse Directive; 4. An Analysis of FIMD, Prospectus and Transparency Obligations Directives as part of the Emerging EU Regime Regulating Market Abuse; 5. Concluding Remarks; CHAPTER SEVEN: THE PROHIBITION AND PUNISHMENT OF MARKET ABUSE IN THE UK; 1. Introduction; 2. Criminal Liability for Insider Dealing and Market Manipulation; 3 The Offence of Market Abuse in FSMA; 4. Remedies; 5. Concluding Remarks; CHAPTER EIGHT: CIVIL LIABILITY FOR MARKET ABUSE IN THE UK; 1. Introduction; 2. Civil Liability under Statutory Law; 3. Civil Liability at Common Law; 4. Liability in Equity; 5. Unjust Enrichment-Restitution; 6. Concluding Remarks; PART III: MARKET ABUSE DETERRENCE; CHAPTER NINE: MARKET ABUSE DETERRENCE UNDER A CIVIL LIABILITY REGIME; 1. Introduction; 2. Civil Remedies for Market Abuse; 3. The Fraud-on-the-Market Theory and its Reconstruction; 4. Civil Remedies and Market Abuse Deterrence; 5. Concluding Remarks and a Proposal; CHAPTER TEN: CONCLUSIONS; 1. An Interdisciplinary Study of Market Abuse: An Overview; 2. Conclusions and Proposals