HOME

TheInfoList



OR:

In
economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
and
finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of f ...
, market manipulation is a type of
market abuse In economics and finance, market abuse may arise in circumstances where investors in a financial market have been unreasonably disadvantaged, directly or indirectly, by others who: * have used information which is not publicly available ( insid ...
where there is a deliberate attempt to interfere with the
free and fair A free and fair election is defined by political scientist Robert Dahl as an election in which "coercion is comparatively uncommon". A free and fair election involves political freedoms and fair processes leading up to the vote, a fair count of el ...
operation of the market; the most blatant of cases involve creating false or misleading appearances with respect to the
price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...
of, or market for, a product,
security" \n\n\nsecurity.txt is a proposed standard for websites' security information that is meant to allow security researchers to easily report security vulnerabilities. The standard prescribes a text file called \"security.txt\" in the well known locat ...
or
commodity In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a co ...
. Market manipulation is prohibited in most countries, in particular, it is prohibited in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
under Section 9(a)(2) of the
Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities ( stocks, bonds, and debentures) in the United States of America. A land ...
, in the
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are located primarily in Europe, Europe. The union has a total area of ...
under Article 12 of the ''Market Abuse Regulation'', in
Australia Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
under Section 1041A of the Corporations Act 2001, and in
Israel Israel (; he, יִשְׂרָאֵל, ; ar, إِسْرَائِيل, ), officially the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, label=none, translit=Medīnat Yīsrāʾēl; ), is a country in Western Asia. It is situated ...
under Section 54(a) of the securities act of 1968. In the US, market manipulation is also prohibited for
wholesale Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. I ...
electricity markets under Section 222 of the Federal Power Act and wholesale
natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbon d ...
markets under Section 4A of the
Natural Gas Act The Natural Gas Act of 1938 was the first occurrence of the United States federal government regulating the natural gas industry. It was focused on regulating the rates charged by interstate natural gas transmission companies. In the years prior t ...
. The US Securities Exchange Act defines market manipulation as "transactions which create an artificial price or maintain an artificial price for a tradable security".


Examples


Rampproofing

To filter out or disregard false and misleading social media posts that were posted for the sole purpose of artificially inflating the market valuation of listed securities.


Pools

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.


Churning

When an advisor enters into a trade for the sole purpose of earning commission. For example buying and selling the same stock either on the same day or over multiple days with no consideration for the benefit of the client


Stock bashing

This scheme is usually orchestrated by savvy online message board posters (a.k.a. "Bashers") who make up false and/or misleading information about the target company in an attempt to get shares for a cheaper price. This activity, in most cases, is conducted by posting libelous posts on multiple public forums. The perpetrators sometimes work directly for unscrupulous Investor Relations firms who have convertible notes that convert for more shares the lower the bid or ask price is; thus the lower these Bashers can drive a stock price down by trying to convince shareholders they have bought a worthless security, the more shares the Investor Relations firm receives as compensation. Immediately after the stock conversion is complete and shares are issued to the Investor Relations firm, consultant, attorney or similar party, the basher/s then become friends of the company and move quickly to ensure they profit on a classic Pump & Dump scheme to liquidate their ill-gotten shares. (See pump and dump.)


Pump and dump

A pump and dump scheme is generally part of a more complex grand plan of market manipulation on the targeted security. The perpetrators (usually stock promoters) convince company affiliates and large position non-affiliates to release shares into a free trading status as "Payment" for services for promoting the security. Instead of putting out legitimate information about a company the promoter sends out bogus e-mails (the "Pump") to millions of unsophisticated investors (Sometimes called "Retail Investors") in an attempt to drive the price of the stock and volume to higher points. When the stock price and volume has reached a target level the promoter sells their shares (the "Dump") at the now elevated prices, taking money off the duped investors who are left holding a stock whose price subsequently falls.


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''. Runs may also occur when trader(s) are attempting to drive the price of a certain share down, although this is rare. (see Stock Bashing)


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.


Wash trade

In a wash trade the manipulator takes both the buy and the sell side of a trade, often using a third party as a proxy to trade on behalf of the manipulator, for the purpose of generating activity and increasing the price. This is more involved than churning because the orders are actually fulfilled.


Bear raid

In a
bear raid A bear raid is a type of stock market strategy, where a trader (or group of traders) attempts to force down the price of a stock to cover a short position. The name is derived from the common use of ''bear'' or ''bearish'' in the language of ma ...
there is an attempt to push the price of a stock down by heavy selling or short selling.


Lure and squeeze

This works with a company that is very distressed on paper, with impossibly high debt, consistently high annual losses but very few assets, making it look as if bankruptcy must be imminent. The stock price gradually falls as people new to the stock short it on the basis of the poor outlook for the company, until the number of shorted shares greatly exceeds the total number of shares that are not held by those aware of the lure and squeeze scheme (henceforward "people in the know"). In the meantime, people in the know increasingly purchase the stock as it drops to lower and lower prices. When the short interest has reached a maximum, the company announces it has made a deal with its creditors to settle its loans in exchange for shares of stock (or some similar kind of arrangement that leverages the stock price to benefit the company), knowing that those who have short positions will be squeezed as the price of the stock sky-rockets. Near its peak price, people in the know start to sell, and the price gradually falls back down again for the cycle to repeat.


Quote stuffing

Quote stuffing In finance, quote stuffing refers to a form of market manipulation employed by high-frequency traders (HFT) that involves quickly entering and withdrawing a large number of orders in an attempt to flood the market. This can create confusion in th ...
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.


Cross-product manipulation

A type of manipulation possible when financial instruments are settled based on benchmarks set by the trading of physical commodities, for example in United States Natural Gas Markets. The manipulator takes a large long (short) financial position that will benefit from the benchmark settling at a higher (lower) price, then trades in the physical commodity markets at such a large volume as to influence the benchmark price in the direction that will benefit their financial position.


Spoofing (finance)

Spoofing is a disruptive algorithmic trading entity employed by traders to outpace other market participants and to manipulate commodity markets. Spoofers feign interest in trading futures, stocks and other products in financial markets creating an illusion of exchange pessimism in the futures market when many offers are being cancelled or withdrawn, or false optimism or demand when many offers are being placed in bad faith. Spoofers bid or offer with intent to cancel before the orders are filled. The flurry of activity around the buy or sell orders is intended to attract other high-frequency traders (HFT) to induce a particular market reaction such as manipulating the market price of a security. Spoofing can be a factor in the rise and fall of the price of shares and can be very profitable to the spoofer who can time buying and selling based on this manipulation.


Price-fixing

A very simple type of fraud where the principals who publish a price or indicator conspire to set it falsely and benefit their own interests. The Libor scandal for example, involved bankers setting the
Libor The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting average rate is u ...
rate to benefit their trader's portfolios or to make certain entities appear more creditworthy than they were.


High closing (finance)

High closing is an attempt to manipulate the price of a security at the end of trading day to ensure that it closes higher than it should. This is usually achieved by putting in manipulative trades close to closing.


Cornering the market

In cornering the market the manipulators buy sufficiently large amount of an asset, often a commodity, so they can control the price creating in effect a
monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
. For example, the brothers
Nelson Bunker Hunt Nelson Bunker Hunt (February 22, 1926 – October 21, 2014) was an American oil company executive. He was a billionaire whose fortune collapsed after he and his brothers William Herbert and Lamar tried to corner the world market in silver ...
and
William Herbert Hunt William Herbert Hunt (born March 6, 1929) is an American oil billionaire, who along with his brothers Nelson Bunker Hunt and Lamar Hunt tried but failed to corner the world market in silver. According to Forbes, as of January 2015 his net worth ...
attempted to corner the world
silver Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
markets in the late 1970s and early 1980s, at one stage holding the rights to more than half of the world's deliverable silver. During the Hunts' accumulation of the precious metal, silver prices rose from $11 an ounce in September 1979 to nearly $50 an ounce in January 1980. 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.


References

{{stock market Financial markets Financial crimes