Supreme Court rules CFD orders can constitute stock price manipulation

The Supreme Court ruled on May 20 that submitting stock price manipulation orders through over-the-counter derivative accounts violates capital market laws if those orders lead directly to trades in listed securities. The decision clarifies that the prohibition on market manipulation extends beyond direct trading of listed stocks to include precursor transactions in contracts for difference.

The court found that defendants conspired with members of an organization for unregistered investment discretionary business to manipulate the prices of eight specific stock issues. They utilized CFD accounts to submit orders involving matched trades, high-price purchases, volume exhaustion tactics and fake bids to artificially inflate share prices or prevent declines for illicit profit.

Judges determined that even though the defendants did not directly trade the listed securities, their CFD orders were passed through securities firms and immediately converted into manipulative trades. The ruling emphasized that the purpose of banning market manipulation is to protect individual investors and maintain trust in the securities market.

The high court stated that where orders using over-the-counter derivatives are expected to be followed by listed security trades at a significant rate, such transactions cannot be excluded from the scope of illegal market manipulation. It noted there is no substantial difference in intent or impact compared to cases where perpetrators directly execute manipulative trades on listed assets.