Regulating Market Manipulation Through an Understanding of Price Creation

National Taiwan University Law Review, Forthcoming

27 Pages Posted: 28 Aug 2010 Last revised: 20 Oct 2015

See all articles by David C. Donald

David C. Donald

Chinese University of Hong Kong - Faculty of Law

Date Written: August 28, 2010

Abstract

Current rules on market manipulation ignore the existing and rapidly growing body of scholarship on how securities prices are formed in markets. These rules are primarily reactive, and depend on vague and difficult measures such as the “artificiality” of a resulting market price or the trader’s intention. Some trades, like matched and wash sales, have indeed been singled out since the 1930’s for special scrutiny, but this list has never been updated. Through even a cursory review of existing literature in financial economics and market microstructure, lawmakers and regulators would be able to know the times, the market conditions, and the types of securities that facilitate and give greatest incentive for trade-based market manipulation, as well as the manipulative techniques best adapted to each, specific situation. Rapid advance in the technological prowess of some institutional traders has lent urgency to the task of updating rules on market manipulation. The playing field between high-powered and retail traders has become so uneven that soon our original understanding of securities markets will be eclipsed. Lawmakers and regulators should take market manipulation seriously and develop presumptions triggered by behavior that is shown to display a very high probability of manipulative intent. This paper presents the parameters along which such presumptions can be formulated.

Suggested Citation

Donald, David C., Regulating Market Manipulation Through an Understanding of Price Creation (August 28, 2010). National Taiwan University Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1667457

David C. Donald (Contact Author)

Chinese University of Hong Kong - Faculty of Law ( email )

Faculty of Law
6/F, Lee Shau Kee Building
Shatin, New Territories
Hong Kong
852 3943 1042 (Phone)
852 2696 1040 (Fax)

HOME PAGE: http://www.law.cuhk.edu.hk/en/people/info.php?id=10

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
264
Abstract Views
1,089
Rank
210,785
PlumX Metrics