Market manipulation

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Market manipulation is 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. Market manipulation is prohibited in most countries, in particular, it is prohibited in the United States under Section 9(a)(2)[1] of the Securities Exchange Act of 1934, in Australia under Section 1041A of the Corporations Act 2001, and in Israel under Section 54(a) of the securities act of 1968. The Act defines market manipulation as transactions which create an artificial price or maintain an artificial price for a tradeable security. Market manipulation is also prohibited for wholesale electricity markets under Section 222 of the Federal Power Act[2] and wholesale natural gas markets under Section 4A of the Natural Gas Act.[3]

Examples[edit]

  • 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."[4]
  • 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."
  • 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 P&D)"
  • Pump and dump: "This 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. After they accomplish both, the promoter sells their shares (the "Dump") and the stock price falls like a stone, taking all the duped investors money with it."
  • 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.[5] 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 to give the impression of voluminous trading, in order to make a quick profit."[6]
  • 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."[7]
  • Lure and Squeeze: This works with a company that is very distressed on paper, with impossibly high debt and 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 (call them "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 is a tactic employed by high-frequency traders that 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.[8]
  • Reading Twitter tweets anything you tweet is being used by bots to decide which way to go. Usually regular positive outlooks such as positive earnings end in a fall. Tweets that promise huge leaps next day will end up in a stock going up heaps. Just saying that stock went up 1.6% could end up stock rising 1.55$ next day. These bots at the time of writing aren't quite smart as re-tweeting an old tweet that possibly made stock to go up earlier, could re-do it since bots doesn't seem to detect the actual tweet date but use retweet date to make decision instead. Even said "Company1" is bought by "Company1" affects them to create volume growth on the stock and end up somewhere middle of their actual pricing range, since they will start buying and selling the same stock thinking it would needed to be bought and at second instance thinking it needs to be sold. If tweeted that one Index is being bought by another Index, one starts to fall and the other to raise. Only way to make any profit regarding avoiding these bots is during the time other people are buying as well. If there is news saying surprise earnings next day then you'd buy asap and sell end of the day before the actual surprise day. Otherwise your bought would be recorded by bots as they see volume possibly via NASDAQ Level II. Once surprise day comes up they will start pulling the stock down until they get enough boughts as people panic or can't wait patiently and sell at loss. Then stock goes up until someone sells. Which then starts going down again to panic other investors. If you short the stock it will start rising by bots detecting how many are shorted. However it seems that shorted stock holders loose less to manipulators yet it's a lot higher risk to take the chances of stock going up unexpectedly too much.

[9] & [10]

References[edit]

  1. ^ http://www.sec.gov/about/laws/sea34.pdf
  2. ^ 16 U.S.C. § 824v
  3. ^ 15 U.S.C § 717c-1
  4. ^ Mahoney, Paul G., 1999. The Stock Pools and the Securities Exchange Act. Journal of Financial Economics 51, 343-369.
  5. ^ Painting The Tape
  6. ^ Sanford: Overview
  7. ^ Bear Raid: Definition and Much More from Answers.com
  8. ^ "Quote Stuffing Definition". Investopedia. Retrieved October 27, 2014. 
  9. ^ "I was recently able to remote control entire Wall St Stock Market". Medium by Rando Hütt. Retrieved August 26, 2016. 
  10. ^ "A super smart Twitter bot may be playing the stock market". siliconANGLE. Retrieved April 21, 2015.