INTRODUCTION AND BRIEF DESCRIPTION
This section criminalizes false or misleading transactions and orders in order to manipulate the appearance of public trading or market prices of a security.
SECTION WORDING
382 Every one who, through the facility of a stock exchange, curb market or other market, with intent to create a false or misleading appearance of active public trading in a security or with intent to create a false or misleading appearance with respect to the market price of a security, (a) effects a transaction in the security that involves no change in the beneficial ownership thereof, (b) enters an order for the purchase of the security, knowing that an order of substantially the same size at substantially the same time and at substantially the same price for the sale of the security has been or will be entered by or for the same or different persons, or (c) enters an order for the sale of the security, knowing that an order of substantially the same size at substantially the same time and at substantially the same price for the purchase of the security has been or will be entered by or for the same or different persons, is guilty of an indictable offence and liable to imprisonment for a term not exceeding ten years.
EXPLANATION
Section 382 of the Criminal Code of Canada is aimed at preventing individuals from creating false or misleading appearances in the securities market with the intention of defrauding others. This section makes it illegal for anyone to engage in transactions or enter orders for the purchase or sale of securities that involve no change in beneficial ownership or are intended to create a false image of active trading or market prices. This section specifically targets activities that can be conducted through the facility of a stock exchange, curb market, or other market that offer the opportunity for speculation or manipulation of securities prices. The section provides three distinct scenarios that could result in criminal charges, including entering orders for the purchase or sale of securities with knowledge of similar orders being entered by others at the same or substantially similar prices and times. The maximum sentence for violating Section 382 is ten years imprisonment, indicating the severity of the crime and the importance of maintaining market integrity. This section aims to ensure that investors can trust the securities market and make informed decisions based on accurate information rather than being misled by deceptive practices. Overall, Section 382 is an essential part of the Criminal Code of Canada that seeks to promote fairness and transparency in the securities market by deterring fraudulent practices. It serves as a critical tool to protect investors and prevent financial losses that could result from manipulation or false trading practices.
COMMENTARY
Section 382 of the Criminal Code of Canada seeks to prevent the manipulation of securities in the financial market. The section prohibits the use of various illegal practices to create a false or misleading appearance of trading activity in securities or to affect the price of securities in the market. One of the primary objectives of the securities market is to provide investors with access to truthful and unbiased information about the companies whose shares they are buying. This information enables investors to make informed decisions about whether to buy or sell the shares, based on the fundamental value of the company, rather than being swayed by false or misleading information. Manipulation of the securities market, as prohibited by Section 382, undermines the integrity of the market and impedes the fair and transparent trading of securities. It creates a false impression of demand for, or supply of, a particular security, leading to artificially high or low prices, which is misleading and harmful to investors. The section focuses on three forms of market manipulation, namely wash trading, matched orders and pre-arranged trades. Wash trading involves the execution of trades in a security but with no change in beneficial ownership, thereby creating a misleading appearance of active trading. Matched orders involve the submission of identical buy and sell orders of substantial size and at the same price, with the intention of artificially inflating trading activity for the security. Pre-arranged trades involve entering a buy order while being aware that a sell order of the same quantity and price has been or will be placed, or entering a sell order while being aware that a buy order will be or has been placed. The penalties for committing an offense under Section 382 are severe, with a maximum sentence of ten years imprisonment. This reflects the seriousness with which market manipulation is regarded and emphasizes the need for investors to trust the market to be transparent and fair. The detection and prosecution of market manipulation are challenging, as it often involves complex schemes and sophisticated techniques. Regulators and law enforcement agencies rely on various methods to detect such practices, including data analysis, surveillance, and insider information. They also rely on whistleblowers, market participants, and the public to report suspicious activities. In conclusion, Section 382 of the Criminal Code of Canada is a vital tool in the effort to ensure the integrity of securities markets in Canada. It serves as a deterrent to those who may seek to manipulate the market for personal gain and as a warning that such behavior will not be tolerated. The section is therefore a critical element in promoting transparency and fairness in the securities market, enabling all market participants to make informed decisions about their investments.
STRATEGY
Section 382 of the Criminal Code of Canada is aimed at preventing insider trading or manipulating market prices through false trades on a stock exchange, curb market, or other market. This provision is designed to ensure that public trust in the integrity of the securities markets is not undermined and that investors can rely on accurate and truthful information when making decisions. When dealing with this section of the Criminal Code, there are several strategic considerations that market participants should keep in mind: 1. Compliance programs: One of the most important strategies in dealing with Section 382 is to establish and maintain robust compliance programs. These programs should include training procedures, monitoring mechanisms, and policies and procedures to detect and prevent market manipulation. By having an effective compliance program in place, market participants can minimize the risk of criminal liability and ensure that they are complying with the relevant regulations. 2. Due diligence: In order to avoid being caught up in a market manipulation scheme, it is important for market participants to conduct proper due diligence on their counterparties. This includes reviewing their trading history, checking for conflicts of interest, and ensuring that they are not engaged in any suspicious trading activity. 3. Transparency: One of the best strategies for avoiding liability under Section 382 is to be transparent and open about trading activity. By providing clear and accurate information to the market, market participants can ensure that their actions are not misinterpreted as manipulative or fraudulent. 4. Cooperation: If an investigation is launched into potential market manipulation, it is important to cooperate with the authorities. This includes providing timely and accurate information to investigators and addressing any concerns or questions they may have. 5. Legal representation: Finally, it is important to have adequate legal representation in place in the event that an investigation is launched. Experienced lawyers can help market participants navigate the complexities of the legal system and ensure that their rights are protected throughout the process. In terms of specific strategies that could be employed, some potential options include: 1. Surveillance systems: Market participants can use advanced surveillance systems to detect and prevent manipulative trading activity. These systems can help identify potential misconduct before it becomes a problem, allowing market participants to take proactive measures to address the issue. 2. Reporting requirements: Regulators can require market participants to report their trading activity on a regular basis, which can help detect suspicious trading patterns and identify potential market manipulation. 3. Whistleblower programs: By establishing whistleblower programs, market participants can encourage employees to report any suspicious behavior or misconduct they observe. By providing appropriate incentives and protections to whistleblowers, market participants can facilitate the detection and prevention of market manipulation. Overall, the key to successfully navigating Section 382 of the Criminal Code is to be proactive, transparent, and compliant. By establishing effective compliance programs, conducting proper due diligence, and cooperating with authorities, market participants can minimize the risk of criminal liability and ensure that they are contributing to the integrity of the securities markets.