Regulating Financial Markets: Anti Manipulation, Insider Trading, and Short Selling Policies

Examination of Trading and Market Integrity under Financial Regulation

This chapter explores the regulatory oversight over trading activities within financial markets, with a concentration on three principal forms of market regulation – market manipulation, insider trading, and short selling. The prohibition agnst these practices by most major jurisdictions underscores their detrimental impact when permitted to occur; it would likely lead to systematic losses for market makers who then increase their bid-ask spreads as a compensatory measure. This cost burden is subsequently transferred onto investors, thereby escalating the expenses associated with securities acquisition and disposition, consequently diminishing investors' willingness to engage in the market activity - thus driving up the cost of capital for issuers.

Contrary to the aforementioned practices, restrictions on short selling, which were implemented following the global financial crisis, are notably harder to justify. This chapter delves into an analytical examination of these regulatory aspects and their implications on market dynamics and investor behavior.

Keywords: Securities regulation, Market manipulation, Market abuse, Insider trading, Market integrity, Securities fraud, Short selling

Subject: Constitutional and Administrative Law, Company and Commercial Law

Collection: Oxford Scholarship Online OSO

Database: Academic Research

This chapter elucidates the oversight over market operations in financial systems, with a focused analysis on three key forms of regulated conduct - market manipulation comprising trade-based manipulation and information-based manipulation or securities fraud, insider trading, and short selling. The elimination of such activities by global jurisdictions demonstrates their potential to cause systemic losses for market makers - these entities would adjust their bid-ask spreads in an attempt to offset potential costs following manipulation occurrences, thereby subsequently passing on this cost burden onto investors who consequently face increased expenses associated with purchasing and selling securities.

A notable contrast exists between the aforementioned practices and restrictions on short selling which were introduced post-financial crisis across multiple jurisdictions. This chapter provides a comprehensive insight into these regulatory elements alongside their influence on market dynamics and investor decision-making patterns.

This manuscript scrutinizes governance mechanisms applied in financial markets concerning trading activities, with primary emphasis on three forms of regulated conduct: market manipulation including trade-based manipulation and information-based manipulation or securities fraud, insider trading, and short selling. The prohibition agnst these practices across most major jurisdictions underscores their potential detrimental impact when permitted - the likelihood of systematic losses for market makers escalates as they adjust their bid-ask spreads to compensate for manipulated occurrences. Consequently, this cost burden is transferred onto investors, leading to elevated expenses associated with securities acquisition and disposition, which in turn reduces investor willingness to engage in market activities - thereby increasing issuers' capital costs.

In contrast, restrictions on short selling introduced post-financial crisis across multiple jurisdictions are harder to justify. This chapter offers an extensive analysis of these regulatory aspects alongside their implications for market dynamics and investor behavior.

This section provides a review of regulation governing trading activities within financial markets, with focus placed on three primary forms of regulated conduct: market manipulation including trade-based manipulation and information-based manipulation or securities fraud, insider trading, and short selling. The prohibition agnst these practices across leading jurisdictions highlights the systemic losses they are likely to cause should they be permitted - this would result in market makers increasing their bid-ask spreads to compensate for manipulated trades, subsequently passing on this cost burden onto investors which leads to higher expenses associated with securities acquisition and disposition.

Compared to aforementioned activities, restrictions on short selling introduced following the financial crisis across multiple jurisdictions are more challenging to justify. This section offers an in-depth examination of these regulatory dimensions alongside their influence on market dynamics and investor decision-making.

The information contned within this manuscript is classified under two major subject headings: Constitutional and Administrative Law and Company Commercial Law, with access being facilitated via Oxford Scholarship Online OSO database for academic research purposes.

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