Market Integrity Breaches In Stock Broking That Should Never Be Committed


[Business Post]

Market integrity is the safe and fair operation of stock markets without falsifying information on trades. The best stock broker in any brokerage firm will follow the finest trading practices so that the investors can be confident while trading and be adequately protected from theft or malpractices.

One of the central goals of securities regulation around the world is to preserve the integrity of the stock markets. By doing so, the security of the investors can be maintained and it can also improve the efficiency of stock markets and guard it against systemic risk.

Despite its importance, market integrity gets relatively low attention and has been confined to only concepts. For instance, Securities regulators simply work toward eradicating unethical trading practices such as insider trading and market manipulation. Regulators must also be required to go further and ensure the transparency of price information, corporate information, and equality of access to the markets.

Stock Broker Illegal Behavior and Fraud

Many individuals dream of becoming rich in the stock market and a good stock broker can help them achieve this dream. stock brokers are accountable for overseeing a large number of investments; however, some unfair stock brokers may take advantage of this in order to increase their own profits. Thus, illegal behaviour by stock brokers is highly condemned in the financial market and it is a real problem with the power of turning into severe financial consequences. The relationship between an investor and a stock broker is based on trust and belief. However, if a stock broker violates their duty with incorrect performance or simple negligence, the consequences can be disastrous.

Let’s take a look at some of the common market integrity breaches in the stockbroking world that must never be committed.

Unregistered/Unlicensed Brokers:

The government necessitates that all stock brokers working the Indian stock market must be registered and licensed through the relevant channels. Serving as a stock broker without these obligation constitutes securities breach.

Unlawful Trading:

Securities law directs stock brokers to verify their stock investments administered with their respective investors. The stock brokers are not allowed to use their investors’ capital without authorization, even if they believe the investor would require them to make a stock purchase.

Fraudulent Investment Information:

Stock brokers are constitutionally prohibited from presenting investors with false or misleading investment information. If a broker misrepresents an investor for personal gain, the broker may be subjected to prosecution.

Portfolio Mismanagement:

Bad investment choices are one of the main risks of the stock market. But, if a broker deliberately fails to diversify an investor’s portfolio, they may be termed as a fraud. This may also involve acting against an investor’s goals, even if the broker believes he is working for the betterment of the investor.

Violation of Contract:

Stock brokers are required to administer business practices according to the initial investment bond established between them and the investor. Failure to do so or intended deviation from the bond can legislate a breach of contract offense.

Market Manipulation:

Market manipulation is planned deception by stock brokers, agents, or bankers in an effort to falsify or alter the market prices. Trying to earn extra profit and competition are both the core of market manipulation. It can be done in the form of information-based manipulation or trade-based manipulation.

Insider trading:

This type of trading is banned in all major market jurisdictions. If allowed to occur, insider trading activities would prompt systematic losses to market makers, who will certainly raise their bid-ask spreads to repay themselves. The additional cost will be transferred on to investors making it more expensive for them to trade securities. It will ultimately reduce investors’ enthusiasm to participate in the financial market, which means issuers will carry a greater cost of capital.

Short Selling:

It is the sale of an investment medium that a seller has recently acquired. The trader earns a profit by selling a security when its value has increased and expects to buy it back later at a cheaper rate. Short selling on stocks normally incurs interest rates based on the valuation of the stock that is held for a short-term.

In a Nutshell:

The objectives of fairness and protecting market integrity is crucial for a number of reasons. The prime reason is that if market integrity breaches are only regulating notions, then they may be ineffective and there would be no way to measure the degree of fraudulent activities. This is problematic as it may become impossible to evaluate the development of securities indexes for a better market operation.

Additionally, if the breaches cannot be measured, then the innovations which improve the market efficiency will be also be affected and lessen the integrity of the market. Thus, it is important for the stock brokers and traders to improve their operations in order to regulate the gains made in the stock market.