The notion of manipulation in a financial instrument : part I

The main aim of this paper is to interpret the Article 39(2) of the Polish Act on Trading in Financial Instruments that provides for a definition of market manipulation in financial instruments. The first part thereof addresses market manipulation as an economic phenomenonthat is regulated by law. It discusses general problems in defining market manipulation. Three concepts of the definition are presented: objective, subjective and mixed concept. The first one uses the term of artificial price, the second one focuses on the intent of perpetrators. The mixed conception connects the objective and subjective elements. It is shown that an useful definition of market manipulation, based only on the term of artificial price, is not plausible, because there are no reliable, objective methods allowing for determination of the correct price as compared to the artificial price. Subjective definition seems to be more useful, although it may be difficult to prove the intent to manipulate the market. The article focuses on the mixed definition, because the legal acts prohibiting the market manipulation contain both objective and subjective elements. In addition, the paper explains basic mechanisms of the market manipulation. Some elementary schemes of trade-based, information-based and action-based market manipulation are presented as well