One of the financial regulations’ objective is to promote fairness, efficiency and transparency in the security market. When the public is confident in the fairness and transparency of the securities market they are in a better position to evaluate risks, and make sound investment decisions which will enhance the liquidity and efficiency as more people enter the market and make more investment decisions.
Market manipulation is a deliberate act to manipulate with the free and fair operations of the market and create false and misleading appearances with respect to the price of, or market for, a security.
When there is manipulation in the market or within a particular security, the integrity of the market or a particular security deteriorates, consequently, confidence in the fairness and transparency of the securities markets diminishes.
Regulatory authorities need to have adequate controls in place to detect, investigate and prosecute market manipulation in accordance with the Financial Markets Act. Under the Financial Sector Council Authority’s (FSCA) supervision the Johannesburg Stock Exchange (JSE), a Self-Regulatory Organization (SRO), operates an order driven market. This means that the JSE operates in a financial market where all buyers and sellers display the prices which they wish to buy or sell a particular security as well as the quantity of the security. The employees responsible for the order driven market consider orders prior to entering them into the market, furthermore, systems designed to block orders that are potentially manipulative are installed in such a manner that should filter orders from entering the market at a price that substantially deviates from the price traded last. The JSE Market Regulation Division identifies unusual price movements which are flagged from the systems put in place, an investigation will be launched and those found guilty will be prosecuted. This control measures may be adopted by other newly licensed exchanges and monitored by the use of the Twin Peaks Model to minimize the threat of market manipulation
The rules and listing requirements of an exchange set by the Financial Markets Act (FMA) allows for price stabilizing mechanisms and does not constitute market manipulation for securities which are subject to such price stabilizing mechanisms. This is another way which the FMA influences activities in the financial markets to curb out financial crimes and reduce opportunities for these crimes to be easily committed.
Many people who are trying to make investments in the securities market are not informed and do not know what market manipulation is and the FMA does not stipulate any requirement for regulatory boards or financial services providers to educate potential investors entering the market on the dangers of market manipulation and how one should protect themselves. There is a lack of knowledge about market manipulation and the FMA does not mention anything or taking measures to inform consumers and prospect investors on this crime, however the FMA does protect the economy sufficiently due to the exchange licensing requirements and enabling SROs such as the JSE to use the resources they possess to curb out or minimize market manipulation in the South African financial market so that participants in the market participate in a fair and transparent securities market.