What is an example of market abuse?

Market abuse encompasses a range of activities that distort the market's natural functioning and undermine investor confidence. Insider trading is a classic example of market abuse. It occurs when an individual makes a trade based on material, non-public information, thereby gaining an unfair advantage over other investors who do not have access to that information. This manipulative behavior violates the principles of fairness and transparency that are essential for maintaining the integrity of financial markets.

While front running and wash trading also represent forms of market abuse, the focus on insider trading in this particular question highlights the clear definition of market abuse as involving the misuse of confidential information. Understanding insider trading is crucial as it directly harms investors and erodes trust in the fairness of the market.

Front running involves a broker executing orders on a security for their own account while taking advantage of advance knowledge of pending orders from their clients, and wash trading involves repeatedly buying and selling an asset to create misleading activity in the market. These, too, pose significant risks to market integrity, but insider trading is one of the most widely recognized and discussed forms of market abuse in regulatory contexts.