Market Manipulation: Is it Real?

As an investor or a market trader, you must have heard about operators, who interfere with the legal operations and create artificial stock price fluctuations.

Now the question is who are these operators? Well, it could be anyone from the flock of market participants. Even small traders can manipulate stock prices in very low volume securities. But the real concerns are large fund managers, who deliberately manipulate prices to maintain their performance. In many circumstances, company managements are involved in manipulating their own stock by providing misleading information and spreading rumours through media. Investor’ masses base their trading and investment decisions on the tone set by their favourite analyst on a news channel or their most trusted news anchor. Now, what if these large news houses are hooked to hedge funds and businesses? This sort of market manipulation can remain largely unnoticed as they very well know how to change market sentiment, functioning within the lame regulation norms.

We can continue to talk about such possibilities as imagination has no regulation; however these operators are regulated to some extent. As per Securities Exchange Act Section 9(a) formed in 1934, any activity that hampers proper market functioning by interfering stock price fluctuations is referred to as manipulation and is a punishable act. However, there are culprits who do not abide law, and attempt to falter the smooth functioning of the financial system. There are many trade practices which have been black listed by the authorities and some of these are mentioned in this write-up. Moreover, market regulators are white collared people, who are just doing their job. So, one cannot expect much from them, as operators continue to rip off investors and dwindle national economic interests.

Spreading Market Rumours’

Generally, market operators over hype a stock’s potential by spreading rumours related to acquisitions, mergers, and false technical & fundamental analysis. They even bribe brokers, analysts and news groups from various platforms to build-up excitement. Impatient investors and traders fall for the hype and put loads at stake for a quick buck. But the winner of the game is already cheering his victory and when he is done with the ramping and exits in a flash, rest are left in despair, only to criticize the news guy, their broker or just another analyst they trusted blindfolded.

Market Churning

Churning is a popular way to manipulate penny stocks, which often remains unnoticed, as regulators focus more on monitoring big plays. Churning in itself doesn’t fetch any profits, but this surely increases activity in a stock as the operator places huge buy and sell orders at the same time. Sudden spurt in activity attracts technical traders who build up large positions in anticipation of a huge breakout, and rest is very much obvious.

The Insider Trade

This is the worst form of stock price manipulation as it is possibly directed by the owners and the company management and there is no way to escape this level of fraud. This is done by buying or selling huge chunks of the stock based on first hand information, before making it public. Access to critical company information and utilizing it to trade positions is an unfair activity, thus insiders are required to provide complete details of the transaction made to the regulatory authorities. Still, they have means to access this route whenever the need arises.

Common investors and traders like you and me have no power over reckless market manipulators, who continue to cheat the entire system, and all we can do is expect the regulators to enforce the law effectively. Sadly, we can only hope to stay on safer side and try to make sound investment decisions.

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