Playing the markets

Do not be misled by the title. This is a very comprehensive guide to the subject, and is an interesting companion piece to The Little Book of Insider Dealing. 

It is straightforward and informative and of interest to people like me who are not directly involved in this area of law. There will be language and terminology that is new to some. Put simply, the subject matter is about cheating by either dishonestly inflating the price of a share or reducing the value for gain. Many and varied are the ways devised to do this.

It is not a new crime. The world’s first stock exchange was opened in 1602 in Amsterdam. Just seven years later, an investor sold all his shares in the Dutch East India Company, forcing the price to fall, and then bought them all back at a low price. Although cheating has always been around, it took some time before there was legislation to address the problem. The first act was in the 1980s, although cheating could be dealt with as fraud under the common law crime.

Over the years, spreading false rumours or fake news have been used. Some relate to whether there was war or peace with France. A financial institution was alleged to have spread false news that Napoleon had won at Waterloo.

Now information travels faster. The book states that high-frequency traders installed ultra-fast optic data connections to gain an advantage over rivals. Millions were spent on a cable from Chicago to New York to reduce communication time from 17 to 13 milliseconds. This allows traders to see and react to other buyers’ orders before execution – and gives them an advantage.

This is a complex subject but here it is set out comprehensively. Organisations have a mechanism to detect cheating and punishments are supposed to be severe – but they are not always so.

David Pickup is a partner at Pickup & Scott Solicitors, Aylesbury