Evolution of Market Abuse and Insider Dealing - Essay Example

Download file to see previous pages regulations are increasingly being set to prevent market abuse which is not only considered illegal but is also highly unethical. In this respect, companies are required to maintain high levels of integrity and confidentiality to assure that such vices do not occur. Market abuse in international dealing however remains apparent and no single country has been able to eliminate them. It can be established that insider trading and market manipulation are observable in most parts of the world today as illustrated by the rising number of lawsuits involving market abuse.

Most directors attest to the fact that regulations set by various legal institutions, including the Financial Services Authority may not succeed in preventing the occurrence of market abuse and insider trading in the UK. The replacement of the Directive on market manipulation and the Insider Dealing Directive by the European Directive on Insider Trading and Market Abuse however offers great promise for the fight against market abuse. The Directive was established with a view of maintaining a common legal framework and therefore addresses both insider trading and market manipulation.

Further, the instrument is not only restricted to the regulated markets but addresses other objectives as well. An example is the Alternative Trading Systems (ATS) because they are highly prone to use in insider trading or market manipulation alongside the regulated market’s financial instruments. This paper introduces a discussion on market abuse and seeks to establish the nature of the European directive and its effectiveness in addressing market abuse. It will also address the role of the financial services authority in the regulation of market abuse.
The concept of market abuse:

Market abuse occurs when unreasonable disadvantage is accorded to investors, either directly or indirectly through actions such as using information that is not available to the public to perform transactions in the stocks and securities market (insider trading); distorting price-setting mechanisms; and provision of misleading information. These actions place investors on an unequal footing such that the principles for sustaining such balances are highly undermined. Market abuse can be classified into insider trading and market manipulation ...Download file to see next pages Read More