9.3.6.5. Market Manipulation
Manipulating market prices through unnecessary trading among agents is also a violation. In this kind of manipulation, agents and/or broker-dealers agree to buy and sell securities to each other at similar prices to give the impression that a security has a more active market that it actually does. They do this in order to drive up the price of the security. This is called making matched trades. Another form of market manipulation is painting the tape. This is when a group of people trade a security back and forth among themselves to create the appearance of higher trading activity and artificially raise the price of the security.
It is also a violation for a broker-dealer or agent to manipulate the price of a security by spreading rumors.
Another violation is for an agent to maintain an account that contains fictitious information that is used to effect transactions that would otherwise be prohibited.
Holding back shares of a public offering that were allotted to a broker-dealer is also a violation. During a public offering, broker-dealers are allotted a certain amount of shares to be sold to investors; it is a violation for them to hold back these shares for their own accounts in hopes that the price will rise in the future.
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SUMMARY TABLE Common Unethical Trading Practices |
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Violation |
Description |
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Overpricing or underpricing a security |
Offering a security for a price that is far above or below its market price |
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Front-running |
Buying or selling a security for an account based on non-public information of an upcoming block trade in the security for a customer |