The Securities and Exchange Commission, the US financial regulator, has increased its efforts to stamp out the deliberate spreading of false rumours to manipulate securities prices.
The commission has begun examining the supervisory and client controls that broker-dealers and investment advisers, including hedge fund advisers, are required to employ to prevent violations of securities laws, including market manipulation. “The examinations will look at the sufficiency of the controls to ensure they are robust,” John Nester, the SEC’s director of public affairs, told theTRADEnews.com.
These new examinations come on top of the commission’s existing enforcement investigations into alleged intentional manipulations of securities prices through spreading rumours and what it describes as “abusive short-selling”.
According Nester, the new examinations are aimed at preventing such abuses, while the enforcement investigations are designed to uncover and punish alleged stock price manipulation through the dissemination of false rumours. “The examinations are an effort to kill rumours before they go out,” he said. “This sends a clear message that traders need to remember that they have an obligation under securities laws before they hit the ‘forward’ button.”
The SEC has decided to boost its efforts to prevent the spreading of false information because of a market climate characterised by rumours about the performance of financial services firms in particular. “We decided to ramp up efforts because of the potentially fertile field for the type of abusive behaviour we want to prevent,” said Nestor.
Nestor said it was impossible to tell how long the examinations will last, but predicted that the announcement alone would have an immediate positive impact. “I can’t imagine any market practitioner being unaware of the extra oversight in addition to the enforcement investigations,” he said.