Can Real Transactions Constitute Market Manipulation?

Abstract

Since a harmonized EU ban on market manipulation was introduced in 2003 with the Market Abuse Directive (MAD), there have not been many cases brought before the European Court of Justice (ECJ) on the interpretation of the ban on market manipulation. In fact, to date there has been only one judgment on the issue from the ECJ. The ECJ is, however, not the only international court that can give its ruling on the interpretation of the EU ban on market manipulation. The EFTA Court has jurisdiction with regard to three EFTA states that are not part of the EU but form the internal market along with EU Member States through the EEA Agreement – Iceland, Norway and Lichtenstein (EEA EFTA states). The EFTA Court can give an advisory opinion on EU legislation such as MAD and MAR which has been incorporated into the EEA Agreement. Such rulings from the EFTA Court have precedent for EEA EFTA states but can also serve as a precedent for EU Member States, especially if the ECJ has not dealt with the given issue. In case E-5/19, criminal proceedings against F and G, on 4 February 2020 (the Beerenberg case), the EFTA Court delivered its preliminary ruling on issues relating to the ban on market manipulation in MAD. This article discusses the EFTA Court’s advisory opinion on the issue of whether real transactions, in the sense that they transfer expense and risk with full effect between independent parties, can constitute market manipulation. The aim of the article is to explore the reasoning by the court and then analyse and argue that such transactions (real ones) can indeed constitute market manipulation according to the 2014 Market Abuse Regulation (MAR) and MAD. The aim is also to analyse when real transactions constitute market manipulation.

Keywords: EU law, EEA law, EU securities regulation, financial market law, capital market law, financial regulation,