Counteracting the practices of sham transactions: market manipulations and using insider trading

Objective: to consider approaches to countering the use of unfair transaction practices, in particular, market manipulations and insider trading within the functions and powers of the Bank of Russia.

Methods: the work used a combination of methods of dialectical, empirical, comparative and logical research.

Results: approaches to the definition of market manipulation are established, the main methods of market manipulation are considered. The activity of the Bank of Russia to identify unfair practices in the Russian financial market was studied; the amount of market manipulation cases was identified and analyzed. The approaches were shown, which exist within the framework of the financial market development strategy to counteract the use of unfair transactions practices, including the practices of market manipulation and the use of insider trading; promising areas of development in the specified areas were identified.

Scientific novelty: the article consolidates the dynamics of the activities of the Bank of Russia, the probable problem areas and the potential in the field of countering the unfair transactions practices, including market manipulation and insider trading; the amount of identified cases of market manipulation is analyzed.

Practical significance: the main provisions and conclusions of the article can be used in the further analysis of countering the use of unfair behavior practices in the financial market and in forming a glossary.

1. Main directions of developing the financial market in the Russian Federation for 2022 and for the period of 2023 and 2024. (2021). Moscow, Bank Rossii. https://www.cbr.ru/Content/Document/File/131935/onrfr_2021-12-24.pdf

2. Main directions of developing the technologies of suptech and regtech for the period of 2021–2023. (2021). Moscow, Bank Rossii.

3. Samuelsson, P. (2005). Lagen om marknadsmissbruk och lagen om anmälningsskyldighet: en kommentar. Stockholm: Norstedts Juridik.

4. Svensson, A.-P., Schedin, H. (2006). Vägledning till rätt kurs på värdepappersmarknaden. Stockholm: Svenska fondhandlareföreningen, 2006.

5. Siems, M. M. (2008). The EU Market Abuse Directive: A Case-Based Analysis. Law and Financial Markets Review, 2. http://europa.eu/scadplus/leg/en/lvb/l24035.htm

6. Fischel, D. F., Ross, D. J. (1991). Should the Law Prohibit “Manipulation” in Financial Markets?. Harvard Law Review, 105 (2), 503–553. https://doi.org/10.2307/1341697

7. Söderström, R. (2011). Regulating Market Manipulation. An Approach to designing Regulatory Principles. Uppsala University.

8. Chitimira, H., Lawack, V. A. (2012). An Analysis of the General Enforcement Approaches to Combat Market Abuse. Obiter, 33 (3). https://doi.org/10.17159/obiter.v33i3.12133

9. Porterfield, P. L. (1940). Securities: Stock Market Manipulation at Common Law and under Recent Federal Securities Legislation. California Law Review, 28 (3), 378–386. https://doi.org/10.2307/3476183

10. Avgouleas, E. (2005). The mechanics and regulation of market abuse, a legal and economic analysis. New York, Oxford University Press.

11. Abrantes-Metz, R., Addanki, S. (2007, Aug 16). Is the Market Being Fooled? An Error-Based Screen for Manipulation. Social Science. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1007348

12. Securities and Exchange Act of 1934, http://www.sec.gov/about/laws.shtml

13. Directive 2004/72/EC of the Commission of implementing Directive 2003/6/EC on accepted market practices, the definition of inside information in relation to derivatives and commodities, the drawing up of lists of insiders, the notification of managers ́ transactions and the notification of suspicious transactions 2004.

14. Directive 2003/71 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC.

15. Directive 2004/109/EC on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC. (2004).

16. Directive 2003/124/EC of the Commission of implementing Directive 2003/6/EC on the definition and public disclosure of inside information and the definition of market manipulation. (2003).

17. Directive 2004/39/EC on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EEC and repelling Council Directive 93/22/EEC. (2004).

18. Af Sandeberg, C. (2002). Marknadsmissbruk: insiderbrott och kursmanipulation. Uppsala, Iustus.

19. CESR/04-505b Guidance.

20. Petschnigg, R. The institutional framework for financial market policy in the USA seen from an EU perspective, Occasional Paper Series, European Central Bank, No. 35. http://ssrn.com/abstract_id=752095

21. Federal Law “On the Central bank of the Russian Federation (the Bank of Russia)” of 10.07.2002 No. 86-FZ.

22. Conception of counteracting unethical practices in the financial market. (2018). https://www.cbr.ru/content/document/file/48603/concept_countering_unfair_actions.pdf

23. Report on the course of implementation of the plan of measures (“road map”) “Main measures for developing the financial market of the Russian Federation for the period of 2016–2018”, adopted by the order of the First Deputy Chairman of the Government of the Russian Federation I. I. Shuvalov of 28.06.2016 No. I Sh-P13-3745. URL: https://minfin.gov.ru/ru/om/reports/?id_57=123076doklad_o_khode_ryealizatsii_plana_meropriyatii_dorozhnoi_karty_osnovnye_meropriyatiya_po_razvitiyu_finansovogo_rynka_rossiiskoi_federatsii_na_period_2016-2018_godov_utverz

24. Kurnosov, A.V. (2021). SupTech and RegTech initiatives: analysis of the basic characteristics and model risks. Russian Journal of Economics and Law, 15 (4), 702–712. https://doi.org/10.21202/2782-2923.2021.4.702-712

25. Bank of Russia. https://cbr.ru/inside/inside_practices/

26. On “switch” deals. https://cbr.ru/inside/inside_practices/article_3/

27. Accomplishing a deal in a stock market with the assistant of an analytical department of a professional actor of the securities market. https://cbr.ru/inside/inside_practices/article_6/

28. Deal with a regulator: new institution in the sphere of counteracting manipulations and inside. https://www.cbr.ru/press/event/?id=9856

29. Unethical practices. https://www.cbr.ru/inside/inside_practices/

30. On unethical practices in informational-analytical interaction of financial organizations with clients. https://www.cbr.ru/press/PR/?file=27072018_193000if2018-07-27T18_38_34.htm

31. Bank of Russia proposes to complement the list of actions referring to market manipulation. https://www.cbr.ru/press/event/?id=9827

32. The list of the revealed cases of illegal use of insider information and market manipulation. https://www.cbr.ru/inside/inside_detect/table/

33. Main directions of developing the financial technologies for the period of 2018–2020. https://www.cbr.ru/Content/Document/File/85540/ON_FinTex_2017.pdf

34. The Central Bank of the Russian Federation will continue to eliminate regulatory gaps to develop IPO, but will not be able to advance without developing private equity and ventures – Interfax. July 15, 2021. http://naufor.ru/tree.asp?n=22024