Market manipulation

Examples

Pools

Main article: Pool operation

Agreements, often written, among a group of traders to delegate authority to a single manager to trade in a specific stock for a work period of time and then to share in the resulting profits or losses. In Australia section 1041B prohibits pooling.

Runs

When a group of traders create activity or rumours in order to drive the price of a security up. An example is the Guinness share-trading fraud of the 1980s. In the US, this activity is usually referred to as painting the tape.

Ramping (the market)

Actions designed to artificially raise the market price of listed securities and give the impression of voluminous trading in order to make a quick profit.

Bear raid

In a bear raid there is an attempt to push the price of a stock down by heavy selling or short selling.

Quote stuffing

Quote stuffing is made possible by high-frequency trading programs that can execute market actions with incredible speed. However, high-frequency trading in and of itself is not illegal. The tactic involves using specialized, high-bandwidth hardware to quickly enter and withdraw large quantities of orders in an attempt to flood the market, thereby gaining an advantage over slower market participants.

Cross-market manipulation

Cross-market manipulation occurs when a trader trades in one market for the purpose of manipulating the price of an asset in another market, capitalizing off the price-moving effects thus generated, instead of with the bona fide intent of profiting off the trade itself.

Cornering the market

Main article: Cornering the market

In cornering the market, the manipulators buy a sufficiently large amount of an asset, often a commodity, so they can control the price creating in effect a monopoly. For example, the brothers Nelson Bunker Hunt and William Herbert Hunt attempted to corner the world silver markets in the late 1970s and early 1980s, at one stage holding the rights to more than half of the world's deliverable silver.{{Cite magazine | access-date = 2008-06-29 }} Silver prices ultimately collapsed to below $11 an ounce two months later, much of the fall occurring on a single day now known as Silver Thursday, due to changes made to exchange rules regarding the purchase of commodities on margin.{{Cite magazine | access-date = 2008-06-29 | archive-url = https://web.archive.org/web/20081002194346/http://www.time.com/time/magazine/article/0,9171,920875-2,00.html | url-status = dead | archive-date = October 2, 2008

New Market Manipulation Examples

Pinging and Spoofing

Pinging involves making small orders and then cancelling them with a computerized program in an effort to induce others in the marketplace to react to the "pings" and reveal their trading intentions to the party pinging. Similarly, with spoofing, a computerized program submits or cancelling multiple bids or offers to manipulate the price of a security.

Electronic Front Running

Similar to traditional front running, electronic front running uses knowledge of future orders to execute trades ahead of a future price. However, electronic front running utilizes financial technology to evaluate price changes and financial transactions for parties to execute advantageous trades.

References

References

1. "Market Manipulation".
2. (2012). "Market Manipulation: A Survey". Journal of Economic Surveys.
3. Calo, R. (2013). Digital market manipulation. Geo. Wash. L. Rev., 82, 995.
4. "Securities Exchange Act of 1934".
5. "Document 02014R0596-20210101".
6. 16 U.S.C. § 824v
7. 15 U.S.C § 717c-1
8. (17 July 2003). "SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003". Securities and Exchange Board of India.
9. Mahoney, Paul G., 1999. [https://www.sciencedirect.com/science/article/pii/S0304405X98000579 The Stock Pools and the Securities Exchange Act].{{closed access Journal of Financial Economics 51, 343-369.
10. "Corporations Act 2001 – Sect 1041B False trading and market rigging--creating a false or misleading appearance of active trading etc".
11. Kenton, Will. "Painting the Tape".
12. "Sanford: Overview".
13. (August 1995). "Dictionary of Finance and Investment Terms". Barron’s Educational Series.
14. "Quote Stuffing Definition". Investopedia.
15. Zabel, Joseph. (August 27, 2020). "Rethinking Open- and Cross-Market Manipulation Enforcement". Virginia Law & Business Review.
16. Lin, Tom C.W.. (2016). "The New Market Manipulation". Emory Law Journal.
17. Lin, Tom C.W.. (2016). "The New Market Manipulation". Emory Law Journal.