T10

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Market manipulation

• Surveillance
  
  
  
  • Insider trading
  
  
  • Market manipulation
  
  
  • SMARTS
  
  
  • Continuous disclosure
  
  
  
  
  

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 stock. This is typically done either by spreading false or misleading information in order to influence others to trade in a particular way, or by using buying and selling orders deliberately to affect prices or turnover, in order to create an opportunity for profit. 

Examples of market manipulation for which ASX Markets Supervision monitors include:

Price manipulation

Placing buy or sell orders (or both) into the market in order to change or maintain the price of a stock. The motives for attempting to do this vary:

• To increase the value of a position in the stock for accounting or portfolio valuation purposes;
  
• To be able to issue new shares at a higher price; or
  
• To cause such a price rise that other investors are attracted to the stock, creating additional demand and higher prices that the manipulator can sell into.

Marking the close

“Marking the close” involves buying or selling a stock near the close of the day's trading, with the objective of affecting the closing price. This might be done to avoid margin calls (when the trader's position is not self-financed), to help stymie a takeover or rights issue, to support a flagging price or to affect the valuation of a fund manager’s portfolio at the end of a quarter (called "window dressing"). A common indicator is trading in small parcels of the security just before the market closes, which results in a higher closing price.

Wash trades and pre-arranged trading

A wash trade is a trade in which there is no change in the beneficial ownership of the securities - the buyer is either also the seller or is associated with the seller. A pre-arranged trade involves two parties trading on the basis that the transaction will be reversed later, or under an arrangement that removes the risk of ownership from the buyer. "Pooling or churning" can involve wash sales or pre-arranged trades executed in order to give an impression of active trading, and therefore investor interest in the stock.

False or misleading information

Companies and investors might be tempted to re-release information or present information in an over-optimistic manner, in order to generate interest in the company’s securities or help a flagging stock price. In some cases this includes unrealistic, unsubstantiated or incorrect data, projections or evaluations and takeover rumours. Unscrupulous investors may also generate interest in a stock by way of internet chat rooms or other mechanisms to affect the price of shares. When the perpetrators use the demand generated by the false information they have spread to sell their own shares, the operation is known as "hype and dump".

Capping and pegging

This involves activity on both the stock market and the derivatives market. A trader writes an option, which obliges the trader to sell to (in the case of a call option) or buy from (in the case of a put option) the option holder a specified number of shares at a specified price. The trader then trades in the shares covered by the option in order to affect the share price in a direction that will make the option unprofitable to exercise.

Mini-manipulation

This is similar to "capping and pegging", and refers to short term manipulation of the price of a security in order to profit from options.

Warehousing

Sometimes securities are "warehoused" or "parked" in the name of one person or company with an arrangement to sell to, or vote at the direction of, another person or company. This may breach the Corporations Act or ASX Listing Rules.