Transaction and Lawsuit based on Market Manipulation in the Stock Exchange

دانشنامه حقوق اقتصادی

Article 3, Volume 25, Issue 13, April 2018, Pages 45-68   

Document Type: Scientific research

DOI: 10.22067/le.v25i14.69752

Authors

ebrahim abdipour^{* 1}; Mohammad Sadeqi²; Fereshteh Ghanbari³

¹University of Qom

²Mofid University

³University of Tehran

Abstract

Market manipulation is a deliberate attempt to interfere with the free and fair operation of the capital market and to create artificial, false or misleading appearances with respect to the price or market of security. Manipulation is an example of market abuse in which financial market investors have been unreasonably disadvantaged, directly or indirectly, by others who have disseminated false or misleading information and have distorted the price-setting mechanism of financial instruments.
In deferent legal systems, manipulation is illegal and prohibited in most cases. One of its legal sanction is criminal sanction. But legal process about its civil sanction is not completed and somewhat not clear. The topic of this article is the legal status of transactions based on manipulation and remedies that the lost parties can resort to.
Theoretical framework
The main feature of financial markets is that the right information is complete and it is directly converted to price. This price determines the balance between supply and demand in the market, while manipulation disarranges this equilibrium. In fact, the main element of manipulation is the alteration of stock prices through disturbances in the normal functioning of the market. Consequently, market manipulation reduces the efficiency of a financial market, and many legal systems for protecting the health and competitiveness of the capital market and its activists can rely on the fair pricing method in securities market which have prohibited the price manipulation. 
Methodology
The method for collecting the information is a library method. We studied statutes, regulations, cases as well as articles and books about this topic. In this comparative study, the method of thinking is the descriptive-analytical method.
Results & Discussion
In most legal systems, there is no clear concept of market manipulation. However, manipulation requires a special attention to influencing the price of securities, and this must be done with a deceptive method. There are deferent approaches about legal status of transactions based on the manipulation and the remedies available for lost person. It seems that the theory of invalidation of transactions based on manipulation is not defendable and the use of mechanism and adopting the approaches that guarantees the rights of investors is preferred. Therefore, to review the proceedings of the arbitral board of SEO (Securities & Exchange Organization) is necessary to achieving a fair legal procedure. It must be noted that just considering of criminal aspect of manipulation is disregarding the principles governing the capital market.    
Conclusions & Suggestions
Market manipulation is an undesirable phenomenon that undermines the security of investment in the stock exchange. However, the most important sanction in dealing with this phenomenon is the criminal sanction, which is also foreseen in the Iranian Securities Market Act. In fact, the reality is that criminal prosecution is an inadequate, ineffective and socially costly way to solve the complex problems of capital market and remedies in civil law, and the mechanisms that the legislator has provided to stockholders can be much more effective, efficient, and less costly.

Keywords

market manipulation; transaction based on manipulation; Sanctions; lawsuit based on market manipulation

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