In a rush? Read this summary:

• Market manipulation, insider trading, and unlawful disclosure are the main forms of market abuse; they are any action that intentionally distort markets and put ordinary investors at a disadvantage for one’s own personal gain.
• Investors share responsibility for preventing market abuse by making informed decisions, recognizing red flags and reporting suspicious activity to protect market integrity and their financial outcomes.
• Financial institutions help to keep the market fair and clean with safeguards like information barriers, employee trading restrictions, and surveillance systems on trading activity.

Financial markets run on trust. This trust is built little by little over time as investment decisions are made by investors using real, public information that does not give anybody an unfair advantage. Transparency of information helps ensure that the market stays clean and free of abuse – which is when insider trading, price manipulation, or unlawful disclosure happens.

If market abuse happens regularly, your financial outcomes as an ordinary investor could be negatively affected by uncertainty and poor market health.

It is important to maintain fair market conduct, as it affects the quality of every investment decision that individuals make and the health of the market as a whole.

What is market abuse (or market misconduct)?

Market abuse is a term that encompasses a wide range of actions, which are any attempt to manipulate or misrepresent the state of the financial market in order to make an unfair gain. It can be perpetuated by individuals or businesses. There are various types of market abuse, including:

Market manipulation (or stock market manipulation)

Where people intentionally create a false picture of a stock’s price or demand to make an unfair profit through methods like price rigging. For example, someone may artificially inflate prices by coordinating trades, place a large number of fake orders, or time transactions to move a closing price. Someone else loses out, while the perpetrator benefits.

Insider trading

Where people trade on non-public information that could affect the outcomes of a trade. This information can be gained through personal or business connections. Anyone – and not just executives – who possesses and acts on this information may be found guilty of insider trading. Even those passing on the tip may carry liability in the form of unlawful disclosure, which we will cover below. 

Unlawful disclosure

Where people pass on non-public information to another party for their advantage in a trade. This may be done by corporate insiders, or anyone who handles sensitive business information. If the recipient trades on it, both parties are liable. It is still considered an unlawful disclosure even if the person passing the incriminating information does not trade themselves. 

Pump and dump schemes

Where the price of the stock is artificially “pumped” through misleading or exaggerated claims, or coordinated buying activity. Once it inflates prices to a certain level, those behind the scheme “dump” their holdings, leaving investors with overvalued stock. It can be hard to distinguish pump and dump schemes from real market enthusiasm, making retail investors vulnerable. 

False trading and wash trading

Where the illusion of fake demand is created by a single entity or colluding group who simultaneously buy and sell the same asset. When both sides of the transaction are controlled by the same person or group, there is no real change in ownership, yet the high trading volume tricks retail investors into thinking the asset is high in demand.

Spoofing

Where large buy or sell orders are placed without any intention to execute them, creating a false impression of supply or demand and manipulating the price to move in a desired direction. Once retail investors react and the price moves, the spoofer will cancel the original order.

What investors should watch out for

Regulators and financial institutions are not solely responsible for preventing market abuse. Individual investors have a role to play when it comes to making investment choices, such as what tips to act on, what activity to question, and what to report. Collectively, these decisions shape the health of the market – and by extension, your financial outcomes. 

There, it is in the interest of all investors to stay informed and recognize when something does not look right. Some red flags to look out for include:

• Being encouraged to make a trade based on information that is not yet public
• Receiving an unsolicited investment tip with unusual urgency
• Receiving an investment tip tied to a specific upcoming announcement
• Noticing a sudden, unexplained price spike in a low-volume stock
• Being asked to pass on sensitive business information to someone outside your organization 

Why market integrity is important to investors?

Market integrity happens when markets are fair and transparent, with prices reflecting real information that is available to all. Investors make decisions confidently, knowing that they operate on a level playing field. Unfortunately, market abuse breaks down this confidence – impacting even those who are not directly involved in the misconduct. Retail investors who had nothing to do with it might find themselves trading on false signals, paying inflated prices, or holding assets with false value.

The effects of this compound over time. Persistent, regular market abuse erodes investor confidence, making the market become less efficient and attractive for growing wealth.
 
Market integrity, therefore, is a shared commitment among all participants, and not just regulators. Regulators may set and enforce the rules, while financial institutions maintain the systems and monitor for any discrepancies. Retail investors complete the picture by playing their part: making informed decisions and learning how to recognize and report suspicious activity.
 
When all parties play their market, markets remain fair, transparent, and – most importantly – worth investing in.
 
New to trading? Start with our beginner’s guide to stock trading.

FAQs on market abuse:

• Can ordinary investors be affected by market manipulation?

Yes. Market manipulation does not just affect traders or institutions involved in the activity. It can also affect everyday investors who unknowingly make decisions based on false or misleading market signals.

• Can you go to jail for insider trading in Singapore?

Yes, you can go to jail for insider trading in Singapore. Under the SFA, those found guilty of insider trading may be issued a fine or sentenced to imprisonment.

• What happens if someone manipulates stock prices in Singapore?

Manipulating stock prices is considered a serious offence in Singapore. Criminal prosecution, civil penalties, and regulatory actions like trading restrictions are all possible outcomes if one is found guilty.

• Can social media posts lead to market manipulation offences in Singapore?

Yes, social media has made it easier than ever for information and opinions to spread quickly across large groups of investors. While discussing investments online is not illegal, problems can arise when false, misleading, or exaggerated claims are shared with the intention of influencing a stock’s price or trading activity.

• How do regulators detect suspicious trading activity?

Regulators use a combination of technology, data analysis, and investigations to monitor financial markets for signs of unusual behavior. They look for trading patterns that may indicate potential misconduct, such as sudden spikes in activity, coordinated transactions, or trading that occur ahead of significant market announcements.

• What is insider trading and why is it illegal?

When someone buys or sells securities with information that is not publicly available, that is considered insider trading. It gives some individuals an unfair advantage over other investors. This undermines trust, distorts prices, and erodes the health of the financial market as a whole.