Market manipulation

Market manipulation

Market manipulation describes a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency.[1] Market manipulation is prohibited in the United States under Section 9(a)(2)[2] of the Securities Exchange Act of 1934, and in Australia under Section s 1041A of the Corporations Act 2001. The Act defines market manipulation as transactions which create an artificial price or maintain an artificial price for a tradeable security.

Examples

  • Pools: "Agreements, often written, among a group of traders to delegate authority to a single manager to trade in a specific stock for a specific period of time and then to share in the resulting profits or losses."[3]
  • Churning: "When a trader places both buy and sell orders at about the same price. The increase in activity is intended to attract additional investors, and increase the price."
  • Runs: "When a group of traders create activity or rumors 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[4]. Runs may also occur when trader(s) are attempting to drive the price of a certain share down, although this is rare.
  • Ramping (the market): "Actions designed to artificially raise the market price of listed securities and to give the impression of voluminous trading, in order to make a quick profit."[5]
  • Wash trade: "Selling and repurchasing the same or substantially the same security for the purpose of generating activity and increasing the price"
  • Bear raid: "Attempting to push the price of a stock down by heavy selling or short selling."[6]

References

  1. ^ http://www.asx.com.au/supervision/participants/market_manipulation.htm
  2. ^ http://www.sec.gov/divisions/corpfin/34act/sect9.htm
  3. ^ Mahoney, Paul G., 1999. The Stock Pools and the Securities Exchange Act. Journal of Financial Economics 51, 343-369.
  4. ^ Painting The Tape
  5. ^ Sanford: Overview
  6. ^ Bear Raid: Definition and Much More from Answers.com
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