In
economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
and
finance
Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...
, 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.
Market manipulation is prohibited in most countries, in particular, it is prohibited in the
United States
The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
under Section 9(a)(2) of the
Securities Exchange Act of 1934, 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 Geography of the European Union, located primarily in Europe. The u ...
under Article 12 of the ''Market Abuse Regulation'', in
Australia
Australia, officially the Commonwealth of Australia, is a country comprising mainland Australia, the mainland of the Australia (continent), Australian continent, the island of Tasmania and list of islands of Australia, numerous smaller isl ...
under Section 1041A of the
Corporations Act 2001, and in
Israel
Israel, officially the State of Israel, is a country in West Asia. It Borders of Israel, shares borders with Lebanon to the north, Syria to the north-east, Jordan to the east, Egypt to the south-west, and the Mediterranean Sea to the west. Isr ...
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 and wholesale
natural gas markets under Section 4A of the
Natural Gas Act.
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 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
In finance, being short in an asset means investing in such a way that the investor will profit if the market value of the asset falls. This is the opposite of the more common Long (finance), long Position (finance), position, where the inves ...
.
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
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
Silver is a chemical element; it has Symbol (chemistry), symbol Ag () and atomic number 47. A soft, whitish-gray, lustrous transition metal, it exhibits the highest electrical conductivity, thermal conductivity, and reflectivity of any metal. ...
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.
See also
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Ponzi scheme
A Ponzi scheme (, ) is a form of fraud that lures investors and pays Profit (accounting), profits to earlier investors with Funding, funds from more recent investors. Named after Italians, Italian confidence artist Charles Ponzi, this type of s ...
*
Insider trading
*
References
{{stock market
Commercial crimes
Corporate crime
Cover-ups
Financial markets
Financial crimes
Finance fraud
Organized crime
Stock market crashes