Should the Law Prohibit "Manipulation" in Financial Markets?

Much of the regulation of financial markets seeks to prevent manipulation. Such manipulative practices include wash sales, matched orders, and short sales. Recent events, such as the criminal prosecutions of Michael Milken, Ivan Boesky, and others, have increased interest in the concept of manipulat...

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Bibliographic Details
Published in:Harvard law review 1991-12, Vol.105 (2), p.503-553
Main Authors: Fischel, Daniel R., Ross, David J.
Format: Article
Language:English
Subjects:
Capital market
Commodities
Economic law
Finance
Financial securities
Fraud
Futures market
Futures markets
Law
Litigation
Manipulation
Market (manipulation)
Market power
Market prices
Regulation
Regulation of financial institutions
Securities markets
Securities regulations
Securities trading
Security prices
Stock prices
Supply
Trade
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Summary:Much of the regulation of financial markets seeks to prevent manipulation. Such manipulative practices include wash sales, matched orders, and short sales. Recent events, such as the criminal prosecutions of Michael Milken, Ivan Boesky, and others, have increased interest in the concept of manipulation in financial markets. Various definitions suggested by the courts and commentators focus on such concepts as interference with the legitimate forces of supply and demand and the creation of articial prices. Because these concepts are meaningless, there is no objective definition of manipulation. Manipulative trades must be defined with respect to the intent of the trader. The low probability that trade-based manipulations can succeed makes them self-deterring. The concept of manipulation should be abandoned. Fictitious trades should be analyzed as a species of fraud. Actual trades should not be prohibited as manipulative regardless of the intent of the trader.
ISSN:0017-811X
2161-976X
DOI:10.2307/1341697