On market abuse

The term market abuse, has recently joined a range of other kinds of abusive behaviour that have been criminalised, from child abuse to domestic abuse to forms of abusive conduct. Abuse is a convenient buzzword for capturing the sense that something is wrong - use differs from abuse - but the content of the idea of abuse varies wildly from context to context.

So what about market abuse? The term is taken from an EU Directive - the Market Abuse Directive (MAD)(2003/6/EC, since you ask) and is repeated in a recent proposal for a directive which aims to established a comprehensive framework to tackle various forms of insider dealing and practices of market manipulation. Insider dealing is defined in Article 3 of the draft directive as the use of inside information to acquire or dispose of financial instruments to which that information relates. Market manipulation (in Article 4) is defined as a range of possible actions from giving false or misleading signals about the price or value of a financial instrument, securing its price at an abnormal or artificial level, deceptions about price of finanical instruments, or the dissemination of false or misleading information for the purpose of profit.

This is an interesting development and, you might think, necessary, especially in the context of the recent financial crisis which has brought to light various forms of shady practice and market manipulation. It is justified in terms of the need for criminal sanctions and uniform enforcement practices across the EU, as markets now cross borders. And it also seems clear that as markets grow, and as financial instruments become more complex, then the risks associated with trading them become ever greater. But this still begs a numbers of questions.

First of all, it is still not clear why criminalistion is appropriate here rather than other forms of regulation - and, as the proposal makes clear, proportionality is an important principle in EU law. It is undoubtedly the case that the potential risks (and thus the potential for social harm) are enormous, but that in itself cannot justify criminalisation in the absence of clearly identifiable criminal wrongs. One difficulty here is that it may be very hard to distinguish between market manipulation and normal practice, and even more to prove that such practices have been carried out intentionally. The proposal also makes a number of assumptions (that criminalisation sends a strong message of disapproval, which may makes sanctions more effective) about the effectiveness of criminal sanctions which may not be justified. But even if this were true of all criminal sanctions, it is still worth asking why market conduct is being criminalised now. 

There is a strong symbolic shift here in the criminalisation of market practices. For many years the market has been seen as beyond the reach of the criminal law - in an realm founded on contract, contract was seen as the most appropriate form of remedy in all but the most egregious cases of deception or falshood. And it was the integrity of the contract that established the market. But in this shift we see that it is market integrity itself which is seen as the value that is to be protected at all costs. There must be trust in the market (between traders) and there must be public trust (as non-participants) that the market is operatiing fairly. This suggests an important shift in the object of criminalisation. As the market becomes more central in the neo-liberal global economy, we see a shift towards the use of criminal law to regulate the market - and it is also significant that the source of this criminal law is the EU. If we want to understand neo-liberal criminal law it is no doubt important that we we focus on this shift.

[I am very grateful to Elena Dede for bringing the MAD to my attention and discussing it with me]