Market abuse

Boiler room

A high-pressure sales operation pushing worthless or grossly overpriced securities through cold calls, social media or messaging groups, usually as the distribution arm of a pump and dump.

Cherry picking

Allocating profitable trades to favoured accounts and losing trades to others after the outcome is known, typically by delaying allocation from an omnibus or block order.

Churning

Excessive trading in a customer account driven by the broker's compensation rather than the customer's objectives, measured by turnover rate and cost-to-equity ratio.

Front-running

Trading ahead of a customer or client order, or of information about it, to profit from the price impact that order is expected to cause.

Market Abuse Regulation (MAR)

The European regime prohibiting insider dealing, unlawful disclosure and market manipulation, with issuer duties to disclose inside information promptly and keep insider lists.

Material non-public information (MNPI)

Information a reasonable investor would consider important to a trading decision that has not been broadly disseminated; trading on it in breach of a duty is insider trading.

Misappropriation theory

The doctrine that trading on confidential information in breach of a duty to its source is securities fraud, even where the trader owes no duty to the company whose shares are traded.

Painting the tape

Executing trades, often between colluding accounts, to produce a misleading printed record of activity or price that lures other participants into a security.

Rule 10b-5

The catch-all US antifraud rule prohibiting material misstatements, omissions and deceptive schemes in connection with the purchase or sale of any security.

Rule 10b5-1 plan

A written pre-arranged plan that gives an insider an affirmative defence to insider trading, provided it was adopted in good faith while not aware of material non-public information.

Tipper and tippee liability

The rule that a person who passes inside information in breach of duty for a personal benefit is liable, as is a recipient who trades knowing of that breach.

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