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What should be allowed on the financial markets?

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basilio

basilio

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A couple of days ago I posted a link to an analysis which alleged that very strong short selling attacks on a company had been reversed by the perpetrators being able to buy large share volumes off market from apparently related entities.

Many posters seemed to think this was just part of the rough and tumble of the market and that smart investors would wise up quickly. In essence - investor beware.

So my question now is :

"What behaviors by brokers, directors, CEO's whoever do you think should be regarded as illegal, how should they be monitored and what do you think should happen to the perps ? " And perhaps a few examples .

I'm just interested to see how far a free market and individual creativity should operate in your eyes versus protection for shareholders and other parties.

Cheers
 
Buying, selling, shorting, covering....What else is there? Dark pools...:frown:

Should large trades off market be allowed? Not unless its disclosed, in my view. I don't see how a free market can be considered a market when the deals are done behind the scenes. To me this would be the last straw for the mom and dad investors, they've already been burnt from buy and hold.....


CanOz
 
Agree with Canoz.

What would be the point of a stock exchange if that were to happen widely?

A big problem on the ASX is the inability to hedge through liquid derivatives and options markets.

This behaviour is a function of that IMO.

If you're short covering, you can lock in your profits with options that won't effect the share price as badly.
 
Still haven't got around to reading the paper you posted Basilio, but tend to agree with your sentiments posted that market manipulation is wrong legally and morally.

IMO current laws are sufficient w.r.t market manipulation and insider trading. Enforcement is the real issue. Unfortunately it's very a costly and time-consuming process to investigate these sorts of trades, let alone gathering enough evidence to successfully prosecute, which begs the question who pays?

It's a trade off that's made and I for one think the markets are transparent and stable enough to not warrant further action at the expense of higher fees and taxes.

All depends on your investing/trading strategy though I suppose. Leveraged or small volume high risk plays are the obvious losers.
 
basilio said:
A couple of days ago I posted a link to an analysis which alleged that very strong short selling attacks on a company had been reversed by the perpetrators being able to buy large share volumes off market from apparently related entities.
Click to expand...

Basilio you have not proven that

1. Trades happened between "apparently related entities"

AND

2. How with any stretch of the imagination if a party is related and they trade between themselves how do they profit from it. Its basic maths mate. :confused:
 
Trembling Hand said:
Basilio you have not proven that

2. How with any stretch of the imagination if a party is related and they trade between themselves how do they profit from it. Its basic maths mate. :confused:
Click to expand...

Sorry to come in off the sideline here but you've posted that question a few times. I kept meaning to find some references for you from a class I took on market manipulation but felt a quick answer was appropriate now and maybe a referenced answer later if I get around to digging out my notes.

The two ways that come to mind to gain from market manipulation are controlling supply, and creating momentum.

Trading back and forth between two parties is a zero sum game as you point out, not counting any trading fees, but what they're doing is creating liquidity, if not a price direction also. The idea being the market notices this apparent change in liquidity, assumes growing momentum and then picks it up and runs with it. The two parties can then let the market run away, triggered purely through their own actions. A few tactically placed trades prior to their manipulation and they walk away with an abnormal profit generated through irrational market behaviour.

Lots of risks, besides the obvious illegalities, but if it pays off the parties have made a profit irrespective of the fundamentals of their target. Clear?
 
Zedd said:
Sorry to come in off the sideline here but you've posted that question a few times. I kept meaning to find some references for you from a class I took on market manipulation
Click to expand...

Mate you are dreaming, with all due respect.
 
Trembling Hand said:
Mate you are dreaming, with all due respect.
Click to expand...

Didn't sound very respectful. Was the scoffing at the class or at the fact that I studies the topic briefly? FYI, class was "Asset Price Behaviour & Financial Market Abuses", focusing primarily at the tatonnement period during market opening, but also looked at a number of other types of market abuse.
 
Zedd said:
Didn't sound very respectful.
Click to expand...

Ha, fair enough it probably wasn't.

Zedd said:
Was the scoffing at the class or at the fact that I studies the topic briefly?
Click to expand...

It was definitely at the class. Get out in the market and try that. You will be cut to pieces by the 100s other fundies and hedgies. And every other big swinging dick looking for fools to pay for their lunch.
 
Trembling Hand said:
It was definitely at the class. Get out in the market and try that. You will be cut to pieces by the 100s other fundies and hedgies. And every other big swinging dick looking for fools to pay for their lunch.
Click to expand...

Curious, you implying it can't be done by anyone? or just by anyone without a serious amount of capital and balls?
 
FlyingFox said:
Curious, you implying it can't be done by anyone? or just by anyone without a serious amount of capital and balls?
Click to expand...

The trouble with the idea that you are big enough to manipulate 1 stock is flawed by the fact you have to exit. ALL big players are desperately looking for miss priced and volume. You load up to move a stock and I can guarantee there will 100 others pushing against you. So you are really going to have to go hard. Then what?

The idea that one or a few can just do as they please is completely removed from reality. The guys with the big money have massive amounts of rules, risk, position sizing, holding size for days to exit etc. its just not how volume is traded.
 
basilio said:
So my question now is :

"What behaviors by brokers, directors, CEO's whoever do you think should be regarded as illegal, how should they be monitored and what do you think should happen to the perps ? " And perhaps a few examples .

I'm just interested to see how far a free market and individual creativity should operate in your eyes versus protection for shareholders and other parties.

Cheers
Click to expand...

Very hard to police inside trading. Unless the ICAC or the investment police set up phone monitors and bug their offices, they'll always be able to announce some information or influence the market the way they want to.

A good way is to set the punishment way above what's needed as a deterrent. Its like that guy I think took a billion dollar position against the Aussie dollar. Now he's spruking for everyone to sell. Worked?
 
Trembling Hand said:
Ha, fair enough it probably wasn't.



It was definitely at the class. Get out in the market and try that. You will be cut to pieces by the 100s other fundies and hedgies. And every other big swinging dick looking for fools to pay for their lunch.
Click to expand...

Point taken while disagreeing. Pricing of an asset at any one time includes all available information. In practice, this includes not just economic fundamentals but also market sentiment and momentum.

Do you agree that market manipulation is possible through misinforming the market?
Do you agree that information is provided to the market through trades?

If so, then what mechanism exists to prevent such manipulation? Market depth? If the market uses trade information to evaluate price, then it's just a question of what trading is required to overcome the existing depth.
 
I could be wrong but my interpretation of TH's comments (and I would say that he's one of several posters here with a load of experience and screen time), is that any stock that is capable of being moved significantly by a single party's trading account or investment, is likely relatively illiquid.

If it's a liquid and heavily traded stock, the likelihood of a single party being able to make any significant, discernible difference to the price on face value alone is pretty slim to none. There are just too many market participants for that to fly.

If it's NOT a liquid or heavily traded stock even if they do move the price their direction, they've now got to sell (or buy) to close out their position and take profits. They aren't going to be able to conjure up enough muppets to close out their position, and if the stock has been ramped up, they'll just be left holding shares they paid too much for. That's the zero sum equation. They might be able to offload some units to your next door neighbour Bob who trades his SMSF account, but they aren't likely to be able to offload all of it without having the same pressure on the stock price in the opposite direction.

The reason markets move everyday is that everyone has different valuation and analysis methods. The idea that by setting up an unwarranted short-term uptrend (and that's only your definition of a trend) with some price manipulation you're going to have any impact on the fundamental analysis, longer term technical analysis or quantitative analysis? This is what I think TH was saying - these are the individuals, institutions and algorithms that will be working against your unfair or unwarranted pricing. If you somehow DID manage to sell or buy your way through them you're now left on the wrong side of everyone's analysis but your own, and you need to somehow exit what would have to be a position that is relatively enormous.
 
Trembling Hand said:
ALL big players are desperately looking for miss priced and volume. You load up to move a stock and I can guarantee there will 100 others pushing against you. So you are really going to have to go hard. Then what?
Click to expand...
Esp in this current market!

Zedd said:
a class I took on market manipulation
Click to expand...
Tell me more

Lots of risks, besides the obvious illegalities, but if it pays off the parties have made a profit irrespective of the fundamentals of their target. Clear?
Click to expand...
Sure they can put trades through different brokers and such. But if asx surveillance catches them they go to JAIL. This aint some oops sorry I forgot I had a buy order when I sold.

Zedd said:
Point taken while disagreeing. Pricing of an asset at any one time includes all available information. In practice, this includes not just economic fundamentals but also market sentiment and momentum.
Click to expand...
Yes in theory, general no in practice.

Do you agree that market manipulation is possible through misinforming the market? Yes, twitter hoax anyone?
Do you agree that information is provided to the market through trades? Yes, partially. Obviously news etc as well

If so, then what mechanism exists to prevent such manipulation? Market depth? If the market uses trade information to evaluate price, then it's just a question of what trading is required to overcome the existing depth.
Click to expand...
Not mechanisms, but other players. Say you're manipulating a stock up. In general you need to buy stock to push it up. Now, after a bit of a move other players will join in. It could be a scared shorter, it could be a fund manager seeking to dump stock. Could be an algo that saw this move as outside normal parameters. You just don't know how the lucky dip will turn out.
 
Zedd said:
Do you agree that information is provided to the market through trades?

If so, then what mechanism exists to prevent such manipulation? Market depth? If the market uses trade information to evaluate price, then it's just a question of what trading is required to overcome the existing depth.
Click to expand...

Sure people react to price. But this is where your theory from school breaks down in the real world application. If Big Swinging Dick A smashes the depth down 5 price levels you think Big Swinging Dick B,C,D out to Z will then follow? They will not. You are thinking from a small persons perspective, from someone who is scared of market moves, who can only react. If Big Swinging Dick B,C,D out to Z were bullish they be thinking "Who is this Muppet that just gave me 5 ticks better price I'll take all that and more please". They will happily absorb all Big Swinging Dick A has to give them. Then if possible push the other way when he is finished.

Its hard to trade size. If someone wants to blatantly and sloppily smash the depth there is ALWAYS someone happily to take the other side.
 
Good points from TH and SQ. Curious, what if you want to drive the price of a stock down? Do the same principles apply or is the market somehow asymmetric due to use of stop losses etc?
 
FlyingFox said:
Good points from TH and SQ. Curious, what if you want to drive the price of a stock down? Do the same principles apply or is the market somehow asymmetric due to use of stop losses etc?
Click to expand...

Mostly same but as always not exactly. To a degree stop losses work the same way as a hard running stock. Stops are when people give up and spew out their position at any price they can get. A hard running instrument is the same but they give up waiting for a "good" price and chase whatever they can get. So very similar emotions and reactions.

Not to mention shorts have stops being hit when something goes up and all derivatives too.
 
This is getting frustrating. My initial comment to TH was to describe a method by which people can manipulate the perceived value of an asset. I understand the objections getting thrown back and agree that the market is largely self-protecting due to it's depth. It is my belief though that it is possible to manipulate the market in a number of manners, and given the incentives to do so, I think it is probable that it occurs. Right person/s, right stock, right time - possible.

If there had been a proven case of manipulation by trading in the last few years I wouldn't need to quote it because you'd all already known of it. There are a number of papers, one of which was posted in the original thread, that is investigating and trying to prove manipulation by trading. The papers I studied were looking at potential manipulation pre-opening and how the introduction of a random opening, along with a visible book reduced apparent manipulation.

Is the market so perfectly rational that manipulation is impossible?
 

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