Initial public offering on the Nasdaq, price manipulation and price impact

Written by Éric Dezeuze and Léna Dufeutrelle

Published in the Bulletin Joly Bourse no. 2

The French financial markets authority, the AMF, has fined a US investment fund €7 million and its director €3 million for price manipulation and breaches of reporting obligations. The fund was a shareholder of a French company listed on Euronext Paris that had just announced its initial public offering on the Nasdaq through the issuance of American Depositary Shares (ADS), specifying that the subscription price of the ADSs would be determined on the basis of the average closing price of the company’s shares on Euronext Paris on five specific trading days. The fund sold a large quantity of the company’s shares on Euronext Paris on those trading days, which had the effect of lowering the share price on this market, and consequently, the subscription price of the ADSs on the Nasdaq. This case provides an opportunity for the AMF’s Enforcement Committee to consider two methods of calculation: that based on price impact at the stage of characterizing the breaches, and that based on the gains obtained at the stage of determining the sanction. Read more