Debt Dictionary


Investment Dictionary -> Manipulation

Market manipulation refers to purposeful or intentional attempt at interfering with the free and fair market operations. Market manipulators try to build artificial, deceptive appearances with regard to the price of, as well as the market for a commodity, security or currency. Market manipulation is illegal and has been prohibited in the U.S. under Section 9(a) (2) of the Securities Exchange Act of 1934. Australia has also prohibited the practice of market manipulation under Section s 1041A of the Corporations Act 2001. According to the Act, transactions which produce an artificial price or try to maintain an artificial price with regard to a tradable security is termed as market manipulation.

There are several ways in which market manipulation may occur. These are:

Illegal insider trading: Illegal insider trading takes place when a particular trade is influenced by the privileged few who have access to some corporate information, which has not yet been publicly announced. Since the information has not yet been made open to several other investors, the few lucky persons use that knowledge to have an unfair advantage over the remaining market. Making use of nonpublic information for the purpose of trade goes against the very norm of capital market, which is transparency.

Pools: Often written agreements are made among a specific group of leaders to entrust the authority of trading in a particular stock for a fixed time period on a single manager. Later the profit or losses are distributed amongst everyone.

Churning: This refers to a trader placing both buying and selling orders at the same price designed to attract more investors to increase price.

Wash trade: This is an attempt to sell and repurchase the same security for generating increased activity and price.

Bear raid: This is an effort at pushing the stock price down through heavy or short selling.

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