The Bottom Line
- Complex trading can be illegal: Using one financial instrument (shares) to deliberately influence the price of a related derivative (like Contracts for Differences – CFDs) is considered market manipulation under the EU Market Abuse Regulation (MAR), regardless of whether the individual trades are executed legally. The trader’s intent is the deciding factor.
- Regulators face scrutiny on process: Financial authorities must apply their own rules correctly. In this case, the Dutch Authority for Financial Markets (AFM) applied the maximum fine threshold for a corporation to an individual—a significant procedural error noted by the court.
- Public announcements must be fair and current: Companies and individuals can challenge how enforcement actions are publicized. The court ordered the regulator to amend its press release to clearly reflect that the initial fine was drastically reduced, setting a precedent for fairness in reputational consequences.
The Details
A recent ruling from the Rotterdam District Court provides a sharp reminder of the scope of market manipulation rules and the procedural checks on regulators. The case involved a private trader who engaged in a practice known as “cross-product manipulation.” His strategy was to first take a position in Contracts for Differences (CFDs), a derivative product whose value is tied to an underlying asset—in this case, shares of the company B&S Group. Immediately after, he would execute a series of aggressive buy or sell orders on the actual B&S Group shares to artificially push the price in the direction that would make his CFD position profitable, which he would then quickly close. The court agreed with the Dutch Authority for Financial Markets (AFM) that this was not legitimate trading but a deliberate scheme to create artificial price levels, a clear violation of the EU Market Abuse Regulation.
While the court upheld the finding of manipulation, it found significant flaws in the AFM’s handling of the penalty. The AFM initially imposed a €750,000 fine, which it later reduced to €99,000 after the trader demonstrated he lacked the financial means to pay. However, the court identified two further errors. First, the AFM incorrectly based its initial calculation on a maximum fine of €15 million—a threshold reserved for legal entities, not the €5 million maximum applicable to natural persons. Although this did not affect the final amount, it was a notable procedural misstep. Second, the court ruled the legal process had exceeded the “reasonable time” limit and ordered a further reduction of the fine to €90,000.
Perhaps the most significant commercial takeaway concerns the public announcement of the fine. The court affirmed the AFM’s right to publicize its enforcement actions to ensure transparency and deter others. However, it sided with the trader on a crucial point: the AFM failed to adequately update its original press release after the fine was drastically reduced from €750,000 to just €99,000 in the objection phase. The court found that simply providing a link to the “latest status” was insufficient to correct the public record. It ordered the regulator to add a clear, explicit statement about the reductions directly to the top of its press release, ensuring that the reputational damage is proportionate to the final, much lower, penalty.
Source
Source: Rechtbank Rotterdam
