Last week the Board of NASDAQ Oslo ASA published a letter of warning against J. Aron & Company for the placement of an unintentional sell instead of buy order of an electricity futures contract by one of its traders in the exchange’s order book. The Board claimed that this error constituted market manipulation under its rules. According to the exchange, the trader’s sell order, which it conceded was “inadvertently entered,” had the impact of lowering the best asking price of the relevant futures contract. While this order was pending, said NASDAQ Oslo, the same trader apparently bought “a larger quantity” in the market outside the order book against a seller who had lowered his asking price based on the “new market valuation in the exchange order book.” The trader, said NASDAQ Oslo, cancelled his unintentional sell order four seconds after placing it. NASDAQ Oslo relied on its rule prohibiting market manipulation, claiming that the trader’s sell order “gave or was likely to give, false or misleading signals as to the supply for and price of a Listed Product” (Market Conduct Rules 5.1; click here to access) in issuing the warning letter to J. Aron. According to the exchange, “[w]hile no evidence of intention to mislead the market has been found and it is accepted that the trader did not act deliberately, it is not decisive for the application of this regulation whether misleading the market was done deliberately.”
Legal Weeds: NASDAQ Oslo appears to suggest that even negligent conduct might provide the basis for a finding of market manipulation, no matter that the conduct is concededly inadvertent. In its warning letter to J. Aron the exchange observed that “the trader at least should have been aware that [his] actions gave or were likely to give false or misleading signals to other market participants and, in addition to having deleted the erroneous sell order, the trader should also have informed the Broker and in addition Nasdaq Oslo Market Surveillance of the error. The Board finds that the trader showed negligence when giving misleading signals.” This seems an unexpectedly low bar and contrary to the traditional standard in legal actions involving manipulation that there be a finding of intent, or even a finding of intent or recklessness to show a manipulative device, scheme or artifice to defraud.