What should be allowed on the financial markets?

[Zedd]

I can't find my notes, and I'm not sure what the rules are with links to papers that are questionably in the public domain but googling the following will find a freely available paper for download:

"Stock-price: Manipulation" - Allen, Gale (1992)
Worth a read...

 

[basilio]

It takes a millisecond to check out the types of market manipulations and frauds that are perpetuated around the world.

Try typing in Market manipulation and Google Wiki. It's all there. Pools, Churning, Stock Basing, Runs, Pump and Dump, Wash Trade, and so on.

Also worth remembering the precursor to GFC 2008. The way that the property and stock markets were manipulated by the large banks to make squillions of dollars. Or did that never happen ?

Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency. Market manipulation is prohibited in the United States under Section 9(a)(2)[1] of the Securities Exchange Act of 1934, and in Australia under Section s 1041A of the Corporations Act 2001. The Act defines market manipulation as transactions which create an artificial price or maintain an artificial price for a tradeable security.
Examples

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."[2]

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.

"

http://en.wikipedia.org/wiki/Market_manipulation

 

[Trembling Hand]

Also worth remembering the precursor to GFC 2008. The way that the property and stock markets were manipulated by the large banks to make squillions of dollars. Or did that never happen ?

Errr didn't they all nearly go broke? Wasn't the the whole point of the GFC.

http://en.wikipedia.org/wiki/List_of_writedowns_due_to_subprime_crisis

Nothing like re-writing history to match your story.

 

[prawn_86]

http://en.wikipedia.org/wiki/Market_manipulation

Based on the definitions you provided:

Pools are simply pooling of funds, no different to a super fund.

Churning, intends to attract other investors by increasing liquidity. As others on this thread have said, it is a zero sum game unless someone else comes in to place orders on either side.

 

[Trembling Hand]

It takes a millisecond to check out the types of market manipulations and frauds that are perpetuated around the world.

Try typing in Market manipulation and Google Wiki. It's all there. Pools, Churning, Stock Basing, Runs, Pump and Dump, Wash Trade, and so on. http://en.wikipedia.org/wiki/Market_manipulation

It may take a millisecond to check some rubbish on Wikipedia and list something that has nothing to do with manipulation, (wash trades) or illegal activity (trading pools!! ya kidding).

But you guys still haven't proved that this stuff is easily done as you claim nor shown that it happens as much as you dudes claim (if at all).

 

[Trembling Hand]

I can't find my notes, and I'm not sure what the rules are with links to papers that are questionably in the public domain but googling the following will find a freely available paper for download:

"Stock-price: Manipulation" - Allen, Gale (1992)
Worth a read...

You think so!!



Zedd have you ever place a trade? Seriously! This is why this subject is just totally out their. Please!!


EDIT; Anyone wants to waste their time here is the link,
http://finance.wharton.upenn.edu/~allenf/download/Vita/stock.pdf
Thou you would be better off spending that time smoking a crack pipe and discussing the endurance of unicorns versus mermaids.

 

[white_goodman]

Thou you would be better off spending that time smoking a crack pipe and discussing the endurance of unicorns versus mermaids.

unicorn ftw

 

[basilio]

TH you are so xxxxxxxxx disrespectful

All I can gather from your dissing of mine or other comments is that there just isn't any way the market can be manipulated because it is so xxxxing perfect. And if anyone is complaining about some seemingly dodgy deals its just sour grapes or dumb decisions. ( OK maybe I am over stating your position but not by much.)

I didn't start this thread to try and prove the size and range of market manipulations. I was inviting people to comment on what they thought should be allowed and perhaps how this might be challenged. And by the way that WIKI reference to market manipulation went through a wide list of activities. I just wasn't willing to copy and paste the lot.

As far as the gross market deception of GFC ? The fact was the main crooks made out like bandits before and after the financial collapses. The US government ie tax payers bailed out the biggest losers and since then we have seen the big investment banks continue to make billions of dollars. Ever wondered how ?

 

[prawn_86]

On topic of this thread, i think the biggest issue is 'leaky ships' so to speak.

Quite often in smaller stocks you see volume and rises or falls coming in a day or 2 before a major announcement. It is this sort of trading that should be stamped out and prosecuted if people are indeed getting information earlier than the market in general. Unfortunately ASIC and most regulators do not have the resources to investigate everything.

Aside from the above, imo, it is extremely, very, super difficult to profit from any form of market manipulation, possibly with the exception of a well executed pump and dump scheme

 

[Trembling Hand]

TH you are so xxxxxxxxx disrespectful

All I can gather from your dissing of mine or other comments is that

They don't make any sense and are very poorly argued, IMO. For example the nonsense about trading shares between yourself.

I think you will find that most people don't like short sellers, derivatives, leverage, large traders when they sell, rumours that don't go their way, bear markets, off market transfers, HFT, day traders, OS money, carry trades, educated investors, smart Hedgies, stocks that move before a screaming good ann, options, futures, etc etc.

Though none of that is illegal. We have a good legal frame work around our markets though the policeman could be better skilled and funded.

But the real problem with our markets is that it hard to make money, isn't it?

 

[basilio]

A bit more about Market Manipulation. Does it actually exists ?

Market manipulation and Corporate Finance. A New Perspective

This paper examines market manipulation in detail . In particular check out :
Page 201 Defines and categorizes Market manipulation

Page 202 Offers instances of Market manipulation. It Starts with the collapse of the Gold corner in 1869 and notes a range of instances up to Solomon brothers scandal in rigging US securities treasury notes and a squeeze on Japanese banks in 1992. They detail 7 particular examples .

Pages 203-206 detail why and how Corporations can manipulate markets for their advantage through action, information and the trading they do in securities. There are some excellent examples of how takeover strategies can be used to misinform markets to the advantage of particular interests

Page 207 details two particular examples of market manipulation in 1991 when Steinhardt partners and Caxton Corporation acting in collusion concerned the US Treasuries 2 year notes market and then parked the notes in institutions that were “unfriendly” to Wall st Firms. Basically they were creating a squeeze.
Solomon Brothers also made false bids for US securities and rigged the markets for their advantage.


http://forum.johnson.cornell.edu/fa...et Manipulation Corporate Finance FM 1993.pdf

 

[Trembling Hand]

You havn't listed the biggest one EVER!!!! (Cue scary music)

And its not even a year old,

http://en.wikipedia.org/wiki/Libor_scandal


Though not sure what it has to do with this topic..... as it was clearly illegal.

 

[CanOz]

There are plenty of examples around where even big traders have not been big enough or good enough to move markets too, like Nick Leeson....

Then there are guys big enough to move some markets around, i.e. Paul Rotter, TH, etc...


CanOz

 

[Trembling Hand]

There are plenty of examples around where even big traders have not been big enough or good enough to move markets too, like Nick Leeson....

Then there are guys big enough to move some markets around, i.e. Paul Rotter, TH, etc...


CanOz

Hahaha!! In my dreams

 

[basilio]

TH I wasn't trying to list every major corporate scandal. That paper was just a good (but quite old) overview of how the markets had been corrupted.

But the interesting question is What should happen to people who participate in these activities ? As far as I can see sanctions are light enough to ensure that the principals of these banks will take a calculated risk that either they won't be caught, or they can BS their way out, or that consequences will not be serious enough versus the money they will make on the deals.

With regard to making money out of trading with yourself. In fact I was talking about share trading between related parties. If you go back to either the Wiki article or the paper I just tabled you can see how companies can create prices on the market through wash sales or churning.

The original article I referred to in the LNC energy discussion went into great detail highlighting the movement of shares between UBS and its affiliates. It is complex and if I was in UBS's shoes I wouldn't be laying a signposted trail for ASIC to follow. But I suggest the research is worth respecting and deserves to be followed up. (If it has happened here then it is likely it will be done again.)

The outstanding feature of UBS dealings has been broker net selling across nearly all trading periods. The net selling amounted to 14.275 million shares. Yet at the same time as substantial net selling has occurred through broker operations, UBS affiliates have recorded net purchases of 6.947 million purchases. In the period Jan 19 to May 16 UBS affiliates sold around 7.56 million shares more than what their broker put through the market but managed to accumulate 3.29 million shares. Their buying looks to have been done through other brokers however the situation raises crucial market integrity issues, particularly in view of the share price slump that occurred during the period.A similar situation occurred in the period May 19 to May 30 where heavy net selling by the broker again coincided with substantial net accumulation by UBS affiliates. The selling of shares by the UBS broking arm while UBS affiliates were building their holdings again raises concerns about the state of the market during a volatile period where the company was presented with a ‘please explain’ from the ASX.

The market data suggests that the company’s reference to an undervalued share price looks to be more
the result of market forces brought about by broker activity rather than company specific issues. UBS becoming a major shareholder mainly through securities lending activity in itself would suggest that lowerprices were an expectation of the corporate positioning that has occurred. While profiting from shortselling can be a legitimate trading strategy any dislocation to share prices brought about by unfair dealings needs to be thoroughly assessed, particularly where accumulation of shares appears to be a primary motivation for the lowering of sharing prices. UBS disclosures are likely to be signalling what is occurring right across the ASX where extensive securities lending, large volumes of back and forth trading churn and the likely co-operation or collusion between brokers are common themes. Unfortunately any unfair trading that doesn’t trigger the 5% substantial shareholder reporting threshold effectively takes place unnoticed and is largely unaddressed by regulators.

http://www.scribd.com/doc/139929124/7-2-Further-Research-Into-ASX-200-Companies-Linc-Energy-LNC

 

[Trembling Hand]

The original article I referred to in the LNC energy discussion went into great detail highlighting the movement of shares between UBS and its affiliates. It is complex and if I was in UBS's shoes I wouldn't be laying a signposted trail for ASIC to follow. But I suggest the research is worth respecting and deserves to be followed up. (If it has happened here then it is likely it will be done again.)

Oh dear you cannot be serious can you? You do know what a broker does?

 

[basilio]

TH what part of "collusion" don't you understand ?

The whole point of the paper I referred to earlier ( Market manipulation in US) was showing how companies can and do use related parties to manipulate markets.

Somewhere along the line you suggested that if there was any concerted but unwarranted bear push on a stock other investors would see an opportunity and buy in.

Bollocks!! If one was a serious investor and saw a concerted short selling effort on a stock you would either join in or step aside and perhaps hope to pick a bottom. (if you were brave ) Only the exceptionally foolish would stand in the way of a serious dump.

I note that you are an experienced trader and you make the wry comment that it is so hard to make a dollar on the markets these days. I suggest you do some research on the number of large swings in individual shares as well as the larger market. My guess is that the big money these days is in creating sharp sells off and perhaps rises and making out in those events. (Perhaps that has always been the case..)

But along the way I suggest we have forgotten that the stock market should be (?) a long term tool for investing companies

 

[Vixs]

TH what part of "collusion" don't you understand ?

The whole point of the paper I referred to earlier ( Market manipulation in US) was showing how companies can and do use related parties to manipulate markets.

Somewhere along the line you suggested that if there was any concerted but unwarranted bear push on a stock other investors would see an opportunity and buy in.

Bollocks!! If one was a serious investor and saw a concerted short selling effort on a stock you would either join in or step aside and perhaps hope to pick a bottom. (if you were brave ) Only the exceptionally foolish would stand in the way of a serious dump.

I note that you are an experienced trader and you make the wry comment that it is so hard to make a dollar on the markets these days. I suggest you do some research on the number of large swings in individual shares as well as the larger market. My guess is that the big money these days is in creating sharp sells off and perhaps rises and making out in those events. (Perhaps that has always been the case..)

But along the way I suggest we have forgotten that the stock market should be (?) a long term tool for investing companies

1. A 'concerted short selling effort' is not manipulation. It's a concerted short selling effort.

2. If the markets are a long term tool for investing in companies, then a short term dump that has NO EFFECT on the fundamentals of the business will have no meaningful impact on the share price, as new analysis will show it to be mispriced and bought up accordingly.

I believe you're talking about the actions of a trader, not an investor. An investor typically won't sell out and then try to catch the knife as it hits the floor - they might add to their position and average down if they have a strong conviction of future value, but people taking a long term view probably aren't trying to pick tops and bottoms.

 

[skyQuake]

The whole point of the paper I referred to earlier ( Market manipulation in US) was showing how companies can and do use related parties to manipulate markets.

The market manipulation paper did give me a few good laughs, any sort of mischievous ingenuity resulted in (illegal) profits.
However, it looks like an ivory tower publication.

http://www.scribd.com/doc/139929124/...inc-Energy-LNC

Pic worth a thousand words:


LNC, WHC, GUF. Its a sector wide thing not just LNC...

 

[sinner]

Pic worth a thousand words:


LNC, WHC, GUF. Its a sector wide thing not just LNC...

I posted a similar pic in one of the other (2, 3?) threads basilio has started about this.