Market manipulation
BaFin detects market manipulation and prosecutes it. Manipulations may be criminal offences and punishable by fines or terms of imprisonment of up to five years. The dissemination of false information, withholding important information or carrying out transactions that mislead investors about the supply, demand or price of a financial instrument can, for example, constitute market manipulation.
One of BaFin's major jobs is to detect and prosecute market manipulation. What constitutes prohibited market manipulation? One example would be the dissemination of false information regarding "circumstances that are of material significance for valuation purposes", such as a company's profits. Or withholding disclosable information that has the potential to influence the stock exchange or market price of a financial instrument (section 20a of the Securities Trading Act (Wertpapierhandelsgesetz - WpHG)).
Also prohibited are transactions that generate false or misleading signals regarding the supply, demand or price of a financial instrument – including, among other things, the unfair trading practices of wash trades or pre-arranged trades. But other acts of deception also constitute market manipulation if they have the potential to influence the price of a financial instrument - for example, if an investment adviser buys shares and then recommends them as a "buy" solely to drive the price up und offload them again at a profit (scalping). Transactions that are permitted market practice are excluded from this prohibition; it is BaFin that decides on the recognition of market practices.
In tracking down market price manipulations, BaFin adopts a similar procedure to the one used in the prosecution of insider trading. Manipulations that have demonstrably influenced the stock exchange or market price are criminal offences punishable by a term of imprisonment of up to five years or a fine. If the action does not influence the price, BaFin may, however, prosecute it as an administrative (i.e. not criminal) offence.
