Fundamentals of market abuse

This chapter addresses the philosophical foundations underlying prohibitions on market abuse. The main concept is that the information determines the price of the financial product on the market, and the price, in turn, expresses the summary of the information available: money serves as a conveyor of information through the price system. Market abuse offences are an essential component of ensuring the market integrity and the correct pricing of financial instruments: they help to create the basic conditions for a functioning market ( institutional function ), to reduce transaction costs incurred by market participants ( operational function ), to ensure the best possible allocation of capital through high transparency of the markets and the best possible information for stakeholders ( allocative function ). The theoretical framework are three models of justification of offences such as market abuses: (1) procedural fairness , which fits into procedural justice : the offender breaks their own duty, for example the source of the information used (insider trader); (2) distributive fairness , which fits into distributive justice : the insider trader who relied on confidential information was benefiting from an “unfair” advantage not held by other traders; (3) egalitarian fairness , which fits into social justice : market abuses affects rights of disadvantaged individuals (for ex. employees of the company). Pivotal in the three explanations is the concept of public trust or confidence , the “Rosetta stone” of all human relations: this chapter will discuss such topics as an institution to protect by the rule of law, provided by the correct information.