Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, April 1, 2008

SROs Warn Against Intentionally Spreading False Rumors

An interesting warning from the SROs, presumably directed at abusive short-sellers:

The Financial Industry Regulatory Authority (FINRA), NYSE Regulation, Inc., and participants of the Options Regulatory Surveillance Authority (ORSA), the self-regulatory organizations primarily responsible for surveillance of trading in the U.S. securities markets, are coordinating efforts to heighten the monitoring and investigation of trading activity in issuers that may be subject to credit market-related volatility. 
Firms are reminded of the prohibitions in FINRA and NYSE Rule 435(5) and FINRA Rule 5120(e) against the circulation in any manner of sensational rumors that might reasonably be expected to affect market conditions, as well as their obligations under FINRA Rule 2110 and NYSE Rule 476 to refrain from any conduct or activity inconsistent with just and equitable principles of trade. Similarly, firms are reminded of the prohibition on trading on material, non-public information.

Market participants should be especially aware that intentionally spreading false rumors or engaging in collusive activity to impact the financial condition of an issuer will not be tolerated and will be vigorously and aggressively investigated.   This type of activity is highly detrimental both to the investing public and to companies constituting important components of the U.S.  financial system.

In addition, market participants should review their internal controls and procedures with regard to the aforementioned activity. Individuals and entities engaging in such unlawful activity may be subject to civil as well as criminal prosecution. Self-Regulators Warn Against Spreading False Rumors and Other Abusive Market Activity

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