Leiden Law Blog

Europeanisation of administrative and civil law: the case of the prohibition of market manipulation

Posted on by Nick Campuzano in Private Law , 1
Europeanisation of administrative and civil law: the case of the prohibition of market manipulation

Inherent to European law is the ‘battle’ between the principle of national procedural autonomy of the member states on the one hand, and, the effectiveness of Union law on the other. The principle of procedural autonomy provides that member states may use their national rules to effectuate European law when such rules have not been prescribed at European level. The application of national rules finds its limitation, however, in the European principles of effectiveness and equivalence as formulated by the Court of Justice of the European Union (CJEU). According to these principles, national law must not render the effectuation of European law impossible or excessively difficult (effectiveness), nor can it be less favourable to claims based on European law (equivalence). The formulation of the principle of effectiveness ensures that it is not easily breached.

Thus, European law has effect in the member states’ legal orders where (i) it prescribes the rules, and (ii) where the principles of effectiveness and equivalence come into play. It is not always an easy task to assess whether a situation qualifies as (i) or (ii) and consequently whether a member state has procedural autonomy or not. This blog will focus on this issue from the perspective of the European prohibition of market manipulation as laid down in the new Market Abuse Regulation (MAR) (formerly the Market Abuse Directive (MAD)). As such, this blog raises the question: How does the prohibition of market manipulation influence national administrative law and civil law? Or, to be more precise, how much room do Dutch national courts have in deviating from the European prohibition by invoking a justification (exemption)?

Market Abuse Regulation: scope and purpose

The room for member states to shape European standards depends on, amongst other things, the form (Directive or Regulation), the degree of harmonisation and the instrument’s scope and purpose. For instance, the purpose of the MAR is to prevent market abuse, to protect the integrity of the financial markets and to ensure there is a common regulatory framework on market abuse. In addition, it shows that the European legislator aimed for a maximum degree of harmonisation by means of regulating the prohibition of market manipulation within the context of a Regulation, thus having direct effect. However, the scope of the MAR appears to be confined to administrative and criminal law; it shows no intention to regulate the civil law effects (such as liability and damages) of an infringement of the prohibition of market manipulation.

Are national justifications in administrative law in conflict with European law?

As explained above, the MAR is aimed at harmonising the public law standard of market manipulation. It sets out a detailed definition of market manipulation and it requires the member states to provide for administrative sanctions. However, does the MAR allow member states (viz. national authorities and national courts) to apply national administrative justifications (bestuursrechtelijke rechtvaardigingsgronden, e.g. Art. 5:5 Dutch General Administrative Law), such as force majeure (overmacht), where the European prohibition of market manipulation has been infringed? Probably not, as this would run counter to the scope, purpose and rationale of the MAR, which explicitly aims for a common approach to the standard of market manipulation. Moreover, the MAR contains a specific exemption to the prohibition; this concerns a so-called ‘transaction manipulation’ where a transaction has been carried out ‘for legitimate reasons’ and where it is in conformity with accepted market practices. The absence of other justifications may be regarded as a sign that the European legislator did not wish to provide for that.

Are national justifications in civil law in conflict with European law?

As mentioned earlier, the MAR does not regulate the civil law aspects of the prohibition of market manipulation. As a result, the civil law effects of infringing the prohibition shall be determined by the national rules, provided that the principles of effectiveness and equivalence are observed (see also the cases of the CJEU Genil/Bankinter and Hirmann/Immofinanz). To determine the European influence on the civil law effects, I will discuss the situation where a national court is applying a less strict standard than the European prohibition by permitting a civil justification. Does this render the effectuation of the prohibition of market manipulation impossible or excessively difficult? And, would it therefore be conflicting with the principle of effectiveness? In my view, the answer to these two questions is no. The principle of effectiveness leaves significant room for the member states to apply their national rules. Thus, the MAR allows national courts to apply civil law justifications to avoid liability on the basis of infringement of the prohibition of market manipulation.

Thus, the intensity of Europeanisation of administrative law on the one hand and civil law on the other, differs significantly. The scope and purpose of the MAR seem to leave no room for the national authorities and courts to deviate from the prohibition of market manipulation by permitting justifications in administrative law. Civil law, however, does not fall under the scope of the MAR. Therefore (only) the principles of effectiveness and equivalence limit the member states’ autonomy, leaving considerable scope for the application of civil law justifications.

1 Comment

David Bernstein
Posted by David Bernstein on July 13, 2017 at 16:25

Great read. Very informative. Content was rich and well organized.

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