Part 7.10 of the Corporations Act 2001 (Cth) prohibits market misconduct and certain other conduct relating to financial products and financial services.

Division 2 of Pt 7.10 deals with various kinds of prohibited conduct, other than insider trading and it is that conduct that is addressed here.

Division 3 of Pt 7.10 contains the insider trading prohibitions and is dealt with separately.

The prohibited conduct which is found in Div 2 is:

• market manipulation (s 1041A );

• false trading and market rigging — acts or omissions creating a false or misleading appearance of active trading in financial products on a financial market or with respect to the market for, or price for trading in, financial products on a financial market (s 1041B );

• false trading and market rigging — fictitious or artificial transactions resulting in the price for trading in financial products on a financial market being maintained, inflated or depressed or fluctuations in the price of trading in financial products on a financial market (s 1014C );

• dissemination of information to the effect that the price for trading in financial products on a financial market is likely to rise, fall or be maintained because of a transaction which is illegal (s 1041D );

• the making of false or misleading statements or the dissemination of false or misleading information likely to induce certain dealings with financial products or to affect the price for trading in financial products on a financial market and the person does not care whether the statement or information is true or false or knows or ought to know it is false or misleading (s 1041E );

• inducing persons to deal in financial products by various improper methods (s 1041F );

• dishonest conduct in relation to a financial product or financial service in the course of carrying on a financial services business (s 1041G ); and

• misleading or deceptive conduct in relation to a financial product or financial service (civil liability only); s 1041H .

Sections 1041A–1041D are the market misconduct provisions. They apply only to conduct on financial markets and the purpose of these provisions is to maintain investor confidence in the integrity of the market.

The other prohibitions (found in ss 1041E–1041H ) are not limited to conduct on financial markets but apply more generally to conduct in relation to financial products and services. The purpose of these provisions is to maintain integrity in the financial services industry generally.

Note that the regulations may make exemptions and modifications to Pt 7.10 (see s 1045A and Corporations Regulations 7.10.03).

Part 7.10 does not contain all the provisions which may capture improper market or other practices relating to financial products and services. Other provisions include:

• prohibitions on hawking of financial products:

• a prohibition on recommendations or offers in relation to certain managed investment schemes that should have been registered but have not been (s 1020A in Pt 7.9 );

• regulation of “short selling” of certain financial products (s 1020B in Pt 7.9 and ASIC RG196 Short selling) (see also Advertising, cooling off periods, enforcement and miscellaneous matters) (s 1020B, Corporations Act 2001 (Cth));

• a prohibition on unsolicited offers to purchase financial products off-market without an offer document (Div 5A of Pt 7.9; ss 1019C–1019K ); and

• the consumer protection provisions relating to financial products and services found in Div 2 of Pt 2 of the Australian Securities and Investments Commission Act 2001 (Cth).

Section 1041A prohibits a person from taking part in or carrying out (whether directly or indirectly and whether in this jurisdiction or elsewhere):

• a transaction that has or is likely to have; or

• two or more transactions that have or are likely to have

the effect of:

• creating an artificial price for trading in financial products on a financial market operated in this jurisdiction; or

• maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on a financial market operated in this jurisdiction.

See Market manipulation (s 1041A).

Section 1041B(1) prohibits a person from doing, or omitting to do, an act (whether in this jurisdiction or elsewhere) if that act or omission has or is likely to have the effect of creating, or causing the creation of, a false or misleading appearance:

• of active trading in financial products on a financial market operated in this jurisdiction; or

• with respect to the market for, or the price for trading in, financial products on a financial market operated in this jurisdiction.

The material dealing with s 1041B is dealt with in two parts. This part deals generally with the provisions of the section.

See False or misleading appearance of active trading etc (s 1041B) (Part 1).

The second part of false trading and market rigging — false or misleading appearance of active trading etc (s 1041B ):

• deals in depth with some of the practices caught by the section (wash sales and matched orders); and

• provides examples of the kinds of activities that may be caught by the section.

See False or misleading appearance of active trading etc (s 1041B) (Part 2).

Section 1041C(1) prohibits a person from (whether in this jurisdiction or elsewhere) entering into, or engaging in, a fictitious or artificial transaction or device if that transaction or device results in:

• the price for trading in financial products on a financial market operated in this jurisdiction being maintained, inflated or depressed; or

• fluctuations in the price for trading in financial products on a financial market operated in this jurisdiction.

See Fictitious or artificial transactions (s 1041C).

Section 1041D prohibits a person from (whether in this jurisdiction or elsewhere) circulating or disseminating, or being involved in the circulation or dissemination of, any statement or information to the effect that the price for trading in financial products on a financial market operated in this jurisdiction will, or is likely to, rise or fall, or be maintained, because of a transaction, or other act or thing done, in relation to those financial products, if:

• the transaction, or thing done, constitutes or would constitute a contravention of s 1041A , s 1041B , s 1041C , s 1041E or s 1041F ; and

• the person, or an associate of the person:

See Dissemination of information about illegal transactions (s 1041D).

Section 1041E(1) prohibits a person from (whether in this jurisdiction or elsewhere) making a statement, or disseminating information, if:

• the statement or information is false in a material particular or is materially misleading;

• the statement or information is likely:

• when the person makes the statement, or disseminates the information:

See False or misleading statements (s 1041E).

Section 1041F(1) prohibits a person from, in this jurisdiction, inducing another person to deal in financial products:

• by making or publishing a statement, promise or forecast if the person knows, or is reckless as to whether, the statement is misleading, false or deceptive;

• by a dishonest concealment of material facts; or

• by recording or storing information that the person knows to be false or misleading in a material particular or materially misleading if:

See Inducing persons to deal in financial products (s 1041F).

Section 1041G(1) prohibits a person from, in the course of carrying on a financial services business in this jurisdiction, engaging in dishonest conduct in relation to a financial product or financial service.

See Dishonest conduct (s 1041G).

Section 1041H(1) prohibits a person from, in this jurisdiction, engaging in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. The section was inspired by the former s 52(1) of the Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law).

See Misleading or deceptive conduct in relation to a financial product or service (s 1041H).

Contravention of the provisions of Div 2 of Pt 7.10 dealing with market misconduct and other prohibited conduct can have a number of adverse consequences:

• failure to comply with any of them (with the exception of s 1041H where civil liability only arises) is a criminal offence;

• sections 1041A , 1041B(1) , 1041C(1) and 1041D are civil penalty provisions; and

• failure to comply with ss 1041E(1) , 1041F(1) , 1041G(1) and 1041H may lead to civil liability.

The court also has power to make a wide range of other orders in relation to Part 7.10 . In addition, ASIC may make banning orders in certain circumstances.

See Prohibited conduct relating to financial products and financial services (other than insider trading) — Checklist.

See Offences, civil penalties and civil liability.