Market Manipulation

Hi guys,

I know that the vast majority of posters on HC are very decent people, so I ask straight up please don't argue or get personal with the few posters who will undoubtedly come on here and try and get the thread shut down, I intend to stay well inside the TOU's, so I ask all others to respect others opinion and alert the moderators if there are any issues!

There was a thread that got deleted because some of the comments were starting to get off topic, so to that end I thought I'd start a new thread for this very topic, that way those who don't want to read it can ignore the thread altogether, please feel free to add the links that were removed because of being off topic in  the other thread.

We have a very interesting financial history and in my opinion the thread was a very important thread which contained information that all new investors should be aware of, the stock market obviously deals with money, and when your new in the game and money is involved, there are plenty of ways for people to be spooked into either selling early or holding to long, there's a plethora of information on the subject.

Indeed we've had parliamentary inquiries into this very area, it's a serious matter that all investors should know about.

This is a snippet from,

The Senate


Economics References Committee

Performance of the Australian Securities and Investments Commission

June 2014.

List of recommendations.


Recommendation 1.

5.80 The committee recommends that ASIC develop a multi-pronged campaign to educate retail customers about the care they need to take when entering into a financial transaction and where they can find affordable and independent advice or assistance when they find themselves in difficulties because of that transaction.

Recommendation 2

6.39 As part of the multi-pronged campaign (see Recommendation 1), the committee recommends that ASIC actively encourage consumers to report any suspected unscrupulous conduct related to consumer credit.

https://www.aph.gov.au/parliamentar...e/economics_ctte/asic/final_report/report.pdf

What does this mean?

Well it means IMO, you should always be aware of other people's motivations as well as your own.

I've put together a few links that deal with what many people believe are common, everyday practices on public forums (this is simply to try and get new investors to do their own research and not believe everything they read on public forums).


Here are some things new traders should be aware of.

Example 1.

• 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]

https://en.m.wikipedia.org/wiki/Market_manipulation

Out of that group I'd like to focus on the "stock bashing" area.

What is a stock Basher?


DEFINITION of 'Stock Basher'
An individual, either acting alone or on behalf of someone else, who attempts to devalue a stock by spreading false or exaggerated claims against a public company. After the stock's price has dropped, the basher, or the basher's employer, will then purchase the stock at a lower price than what he or she believes it is intrinsically worth.


BREAKING DOWN 'Stock Basher'
This is an illegal activity that can carry significant legal repercussions. The basher generally benefits on how effective the negative rumors are, which can dramatically affect a stock's value. If an investor believes the false claims, he or she may sell off the stock at the higher price before it falls. The basher will then purchase the stock and ride out the gains.


http://www.investopedia.com/terms/s/stockbasher.asp

Trade parasites feeding at the heart of the ASX.

In the Australian Securities Exchange's Sydney data room, which is about the size of a big lounge room, there are six "cuckoos". These are the banks of servers installed by high-frequency traders.

They sit against the wall opposite the ASX servers and each is connected directly into the host by a fat fibre optic pipe. Each cable is precisely the same length by agreement with the ASX so that none gets an advantage; if one server is closer to the input, its cable is looped around to lengthen it.

Think about that: one less metre of optic fibre carrying data at 299.8 million metres per second - that is, the speed of light - would give one share trader an unfair advantage over the rest. It suggests that something pretty quick is going on.

The question is whether it's fair to the rest of us; whether those six parasites with their suckers fastened directly into the heart of the ASX should be allowed to get away with it.

The ASX is no longer a regulator, just a business, so it says that if the practice is legal and it pays a fee – not to mention a handy rent in the data room – then it can't and won't stop them.

For global regulators, it's actually too late: high-frequency trading accounts for as much as 70 per cent of the volume on American stock exchanges, including the NYSE; the time to control it was 10 years ago.

What do the computers and their algorithms do? Well, as my relatively low-frequency brain can understand it, these machines constantly monitor order flow into the ASX servers, and the sophisticated programs can pick up patterns that indicate when a reasonably large order has been placed. What they then do, in effect, is "front-run" – that is, they buy ahead of the order and make a small spread selling into it.

In other words, by operating at the speed of light they can "feel" a buy order coming and can dart in front of them and ensure that the buyers pay a little bit more than they were going to, without noticing a thing.

These operators begin each day owning no shares and end each day in the same position, but they make a lot of money by doing thousands of trades every day: it's a high-volume, low-margin business.

It's not known how much money the HFT traders make, but whatever it is, they weren't making it 10-15 years ago, and stock market returns have not gone up in that time, so whatever they make has come out of someone else's pocket.

That someone, of course, is you. The buy orders that the HFT operators are front running come from the superannuation funds in which ordinary people have their money. Now when they place an order, they usually end up paying a cent more than they would have because they are buying from someone who didn't own any of the shares 10 microseconds ago and only bought them to make that quick cent.

HFT represents less than 10 per cent of the volume of the ASX, but in the United States it is much more, and there is no reason to think we won't follow the US.

Should something be done to stop it? I think so, but it's too late.

HFT firms like the privately owned and aptly named Getco (Global Electronic Trading Company), the world's largest HFT operator, produce a large amount of self-justifying research material based around the proposition that they help investors by providing extra liquidity in the market.

This, plus presumably the hiring of expensive lobbyists, has snowed legislators and regulators and let the practice flourish, to the point where the parasites are taking over the host and it's too late to stop them.

Stock exchanges the world over are now making a fortune from renting space in their data rooms to high-frequency computerised traders and would probably collapse without it (the ASX would not – yet.)

As a result, investors are abandoning the "lit" markets and using "dark pools" instead. This simply refers to off-market share trading away from the official stock exchanges provided by investment banks where big investors know they are not being picked off by high-frequency front runners. The problem with that is that these "dark pools" are not properly regulated or transparent.

The joke is that in many cases, the same investment banks are doing both the high-frequency trading and running the dark pools; they are causing the problem and solving it, each for a handsome profit.



http://mobile.abc.net.au/news/2012-...uency-trade-parasites-at-heart-of-asx/3943052

As I said earlier, please feel free to add any relevant links.

Cheers.