Market manipulation



Market manipulation

Market manipulation


IT Law and Finance Law.

Since 20 years it has become more common with trading of assets over the Internet.

It has exposed brokers to competition. This have in the last 20 years led to lower fees and been catered especially for smaller investors.

The Internet has since 10 years also extended the possibility of market manipulation. Seemingly, it would give more players, from small to major, the possibility of market manipulation, but the Internet has been through the HTF particularly benefiting few major players.

This is not allowed under the current constitution in Sweden among other countries and according to the regulations at larger International marketplaces:

Trade with petty cash with goal to change the last paid

This behavior is sometimes called in swedish "enpetare" (i e "poking" in english) and is the term for the kind of business where someone with petty cash are trying to influence the pricing for an access or the price paid for the securities for an instrument. This behavior means that someone repeatedly buys or sells assets on a single stock to "lift up" or "poke down the" price paid for the instrument. It doesn't in itself necessarily only apply to the purchase of a single stock, it applies to any kind of trade in which the manipulator of small means are trying to influence pricing.

Trade with yourself

To add matching buy and sell orders in the market and thus achieving a deal in which you are both buyers and sellers is a behavior that may constitute market manipulation, then it may give other investors a false picture of the assets actual price and turnover.

If, for tax reasons, you wish to move a possession, it is not permissible to do it yourself in the market by adding matching buy and sell orders. Instead, contact Petrus Toxy Law Firm for assistance to implement the deal in a proper way.

This applies even if it is two different people on the buy and sell side, but where these are acting in concert.

Misleading orders

Orders that are not intended to go all the way to the clearence gives a misleading picture of the supply and demand and are therefore examples of undesirable behavior.

An example is when someone builds up a volume on the buy side of the order book in order to attract other investors to place their buy orders at even higher prices in the order book. When the manipulator who started built up the volumes make it fit to sell the shares, the manipulator will do it at a slightly higher rate than existed before.

The same behavior can be abused when a manipulator really want to buy shares as cheaply as possible. Then the manipulator put larger sell orders to trigger other investors to sell their shares at an even lower price.

The dubious step is therefore to place orders that never really were intended for clearance. The initial order placed is contrary to the actual buy or sell interest and put in to attract other actors that the manipulator then deal with.

Trade Shares to affect the price of derivatives

In most cases it is so that the pricing of a derivative is directly linked to the current price situation in the derivative's underlying asset, usually a single share. This means that if the share price moves so will the price of the derivative also do.

Then there is an automatic link between the price of the two assets this may be misused by, for example acting in the shares with the purpose to get into a price movement on derivative which the manipulator then can buy and earn money.

This unlawful conduct can be performed in all types of instruments where there is an automated, predictable link between pricing of the two instruments.

The course runs at the record time

At certain given times, for example at certain hours or on monthly, quarterly or year-end, stock prices used as reference values for calculating the different values.

To consciously act up or down the value of a stock in order to influence the calculation of these related values is not allowed.

The same applies if you knowingly procures one share in order to affect the value of its holding or the total value of their custody, a process that sometimes is associated with that mortgaged their shares.

High-frequency trading (HFT)

High-frequency trading (HFT) is not in itself illegal or seen as market manipulation, but it can be used in a very sofisticated way to market manipulation.

HFT is a type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. There is no single definition of HFT, among its key attributes are highly sophisticated algorithms, co-location, and very short-term investment horizons. HFT can be viewed as a primary form of algorithmic trading in finance. Specifically, it is the use of sophisticated technological tools and computer algorithms to rapidly trade assets. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in fractions of a second. Proportion of HFT may vary from 0% to 100% of all short-term trading volume. Previous estimates reporting that HFT accounted for 60-73% of all US equity trading volume.

This means that very few major investors control the HFT market and via that the major International marketplaces. Then HFT have few whistle-blowers and then market manipulation by HFT is hard to prove, because of its complex nature, there are few market manipulation by HFT convictions around the world. But. Market manipulation via HFT is the most damaging market manipulation of them all. Because it impact negatively many pension savers, small investors and also major investor such as pension funds, whom are not in the business of HFT. These savers and investors are always second on the ball. Because computers are always faster than humans. In near future market manipulation by HFT will affect even more negatively the small investors, when development in the fields of real A.I. takes off.

Welcome to the winning side.

Petrus Toxy

Legal counsellor



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