Market manipulation, generally considered to be a serious form of misconduct, has been a focus of significant attention internationally, with widespread allegations of market manipulation not just relating to securities, but also to interest rates, foreign exchange, and commodities. Our working paper, ‘Enforcement of Financial Market Manipulation Laws: an International Comparison of Sanctions’ presents the results of a detailed comparative empirical study of sanctions imposed for trade-based market manipulation in Australia, Canada (Ontario), Hong Kong, Singapore and the UK.
While much research focuses on legal analysis of legislation and judgments of the courts, it is important to conduct research on the actual sanctions being imposed. Strong laws without strong enforcement measures are not enough to maintain investor confidence in the integrity of financial markets. Our study compares the type, magnitude and frequency of sanctions imposed by statutory bodies and courts for market manipulation in the selected jurisdictions, in the ten-year period to 31 December 2015. The study provides a detailed analysis of the market manipulation enforcement landscape by examining custodial sentences, banning orders, and various pecuniary sanctions imposed for market manipulation.
A summary of the most common sanctions imposed in each of the jurisdictions is provided in the following table:
|Jurisdiction||Most common sanction||Second most common sanction||Third most common sancation||Least common sanction|
|Australia||Ban (56%)||Custodial (48%)||Punitive pecuniary (12%)||Corrective or restorative (0%)|
|Hong Kong||Custodial (41%)||Ban (40%)||Punitive pecuniary (34%)||Corrective or restorative (7%)|
Corrective or restorative (59%)
Punitive pecuniary (59%)
|Singapore||Punitive pecuniary (92%)||Ban (28%)||Custodial (14%)||Corrective pecuniary (0.0%)|
|United Kingdom||Punitive pecuniary (88%)||Bans (48%)||Corrective or restorative (44%)||Custodial (0.0%)|
|Average (simple)||Punitive pecuniary (57%)||Bans (53%)||Corrective or restorative (22%)||N/A|
Proportion of offenders receiving each sanction for market manipulation
Here are our key findings on the different enforcement approaches relating to market manipulation:
A typical offender in Australia received a ban or a custodial sentence. The number of bans is significant given that offenders convicted of market manipulation in the criminal courts are also subject to automatic disqualification from managing corporations in Australia for five years. Pecuniary sanctions were very rarely imposed on offenders (only three offenders received pecuniary sanctions).
In Hong Kong, around 41% of offenders received a custodial sentence, and a slightly smaller proportion of offenders (40%) received a ban. Around a third of offenders also received a punitive pecuniary penalty. However, nearly two thirds of the custodial sentences were fully suspended, and the other sentences tended to be substantially shorter than in Australia. The size of pecuniary sanctions tended to be low both in absolute terms and as a proportion of profits. A typical offender in Hong Kong received a ban, a short custodial sentence, or a small pecuniary penalty.
Ontario was characterised by a high proportion of offenders receiving bans, and a relatively high number of pecuniary sanctions. However, there was only one custodial sentence imposed for market manipulation in Ontario during the study period, so a typical offender received a ban and a pecuniary sanction. The typical offender was ordered to disgorge the illegal profit, but the size of the punitive component of the pecuniary sanction was in a number of cases small relative to the size of the profit.
In Singapore, pecuniary sanctions were imposed on nearly all offenders, and these sanctions were significantly higher than the illegal profits. Bans were imposed on around 28% of offenders. In Singapore, a market manipulation conviction or a civil penalty also results in automatic management disqualification for five years.
A typical offender in the UK received a punitive pecuniary sanction, and in some cases also a ban. In the UK, the size of pecuniary sanctions tended to be substantially higher than in the other jurisdictions both in absolute terms and when compared to the size of the illegal profit (the median punitive pecuniary sanction was more than three times the size of the illegal profit). However, it is significant that there appear to have been no criminal sanctions imposed for market manipulation in the UK, despite the fact that insider trading offenders are increasingly prosecuted criminally in that jurisdiction.
Lev Bromberg is a Research Fellow, George Gilligan is a Senior Research Fellow, and Ian Ramsay is the Harold Ford Professor of Commercial Law and Director of the Centre for Corporate Law and Securities Regulation, Melbourne Law School, the University of Melbourne.