Market manipulation

Short description: Deliberate attempt to interfere with and subvert the free market

For other uses, see Manipulation.

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Template:Criminal law In economics and finance, market manipulation occurs when someone intentionally alters the supply or demand of a security to influence its price. This can involve spreading misleading information, executing misleading trades, or manipulating quotes and prices.[1][2][3]

Market manipulation is prohibited in most countries, in particular, it is prohibited in the United States under Section 9(a)(2)[4] of the Securities Exchange Act of 1934, in the European Union under Article 12 of the Market Abuse Regulation,[5] in Australia under Section 1041A of the Corporations Act 2001, and in Israel under Section 54(a) of the securities act of 1968. In the US, market manipulation is also prohibited for wholesale electricity markets under Section 222 of the Federal Power Act[6] and wholesale natural gas markets under Section 4A of the Natural Gas Act.[7]

In India it is illegal under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.[8]

## Contents

* 1 Examples
* 1.1 Pools
* 1.2 Runs
* 1.3 Ramping (the market)
* 1.4 Bear raid
* 1.5 Quote stuffing
* 1.6 Cross-market manipulation
* 1.7 Cornering the market
* 2 Examples
* 2.1 Pinging and spoofing
* 2.2 Electronic front running
* 3 See also
* 4 References

## Examples

### Pools

Main article: Finance: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.[9] In Australia section 1041B prohibits pooling.[10]

### 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.[11]

### 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.[12]

### Bear raid

In a bear raid there is an attempt to push the price of a stock down by heavy selling or short selling.[13]

### 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.[14]

### 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 initial trade itself.[15]

### Cornering the market

Main article: Social: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 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.[16] 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.[17] Silver prices ultimately collapsed to below $11 an ounce two months later,[17] 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.[18]

## 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.[19] 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.[20]

## See also

* Ponzi scheme
* Insider trading

## References

1. ↑ "Market Manipulation" (in en). https://www.investor.gov/introduction-investing/investing-basics/glossary/market-manipulation.
2. ↑ Putniņš, Tālis J. (2012). "Market Manipulation: A Survey". Journal of Economic Surveys 26 (5): 952–967. doi:10.1111/j.1467-6419.2011.00692.x. https://doi.org/10.1111/j.1467-6419.2011.00692.x.
3. ↑ Calo, R. (2013). Digital market manipulation. Geo. Wash. L. Rev., 82, 995.
4. ↑ "Securities Exchange Act of 1934". https://www.sec.gov/about/laws/sea34.pdf.
5. ↑ "Document 02014R0596-20210101". https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02014R0596-20210101.
6. ↑ 16 U.S.C. § 824v
7. ↑ 15 U.S.C § 717c-1
8. ↑ "SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003", India Gazette (Mumbai: Securities and Exchange Board of India), 17 July 2003, https://www.sebi.gov.in/acts/pfutpregu.pdf
9. ↑ Mahoney, Paul G., 1999. The Stock Pools and the Securities Exchange Act. 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". https://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s1041b.html.
11. ↑ Kenton, Will. "Painting the Tape". https://www.investopedia.com/terms/p/paintingthetape.asp.
12. ↑ "Sanford: Overview". https://www.sanford.com.au/sanford/Help/Glossary/Glossary.asp?Letter=R.
13. ↑ Downes, John; Goodman, Jordan Elliot (August 1995). Dictionary of Finance and Investment Terms (4 ed.). Barron’s Educational Series. p. 46. ISBN 0812090357.
14. ↑ "Quote Stuffing Definition". Investopedia. http://www.investopedia.com/terms/q/quote-stuffing.asp.
15. ↑ Zabel, Joseph (August 27, 2020). "Rethinking Open- and Cross-Market Manipulation Enforcement". Virginia Law & Business Review. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3682103.
16. ↑ Gwynne, S. C. (September 2001). "Bunker HUNT". Texas Monthly (Austin, Texas, United States: Emmis Communications Corporation) 29 (9): 78.
17. ↑ 17.0 17.1 Eichenwald, Kurt (1989-12-21). "2 Hunts Fined And Banned From Trades". The New York Times. https://www.nytimes.com/1989/12/21/business/2-hunts-fined-and-banned-from-trades.html.
18. ↑ "Bunker's Busted Silver Bubble". Time Magazine (Time Inc.). 1980-05-12. http://www.time.com/time/magazine/article/0,9171,920875-2,00.html. Retrieved 2008-06-29.
19. ↑ Lin, Tom C.W. (2016). "The New Market Manipulation". Emory Law Journal 66: 1288-1290.
20. ↑ Lin, Tom C.W. (2016). "The New Market Manipulation". Emory Law Journal 66: 1290-1291.

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Financial markets

Types of markets|

* Primary market
* Secondary market
* Third market
* Fourth market

Types of stocks|

* Common stock
* Golden share
* Preferred stock
* Restricted stock
* Tracking stock

Share capital|

* Authorised capital
* Issued shares
* Shares outstanding
* Treasury stock

Participants|

* Broker-dealer
* Day trader
* Floor broker
* Floor trader
* Investor
* Market maker
* Proprietary trader
* Quantitative analyst
* Financial law
* Regulator
* Stock trader

Exchanges|

* Electronic communication network
* List of stock exchanges
* Trading hours
* Multilateral trading facility
* Over-the-counter

Stock valuation|

* Alpha
* Arbitrage pricing theory
* Beta
* Bid–ask spread
* Book value
* Capital asset pricing model
* Capital market line
* Dividend discount model
* Dividend yield
* Earnings per share
* Earnings yield
* Net asset value
* Security characteristic line
* Security market line
* T-model

Trading theories
and strategies|

* Algorithmic trading
* Buy and hold
* Contrarian investing
* Day trading
* Dollar cost averaging
* Efficient-market hypothesis
* Fundamental analysis
* Growth stock
* Market timing
* Modern portfolio theory
* Momentum investing
* Mosaic theory
* Pairs trade
* Post-modern portfolio theory
* Random walk hypothesis
* Sector rotation
* Style investing
* Swing trading
* Technical analysis
* Trend following
* Value averaging
* Value investing

Related terms|

* Block trade
* Cross listing
* Dark pool
* Dividend
* Dual-listed company
* DuPont analysis
* Efficient frontier
* Flight-to-quality
* Government bond
* Haircut
* Initial public offering
* Long
* Margin
* Market anomaly
* Market capitalization
* Market depth
* Market manipulation
* Market trend
* Mean reversion
* Momentum
* Open outcry
* Position
* Public float
* Public offering
* Rally
* Returns-based style analysis
* Reverse stock split
* Share repurchase
* Short selling
* Slippage
* Speculation
* Stock dilution
* Stock exchange
* Stock market index
* Stock split
* Trade
* Uptick rule
* Volatility
* Voting interest
* Yield

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