A:

Many individual investors have had the experience of closing their position in a stock only to see the price rebound moments later. When this happens, it may lead the investor to believe that the price was manipulated, and this in turn raises questions like this one.

According to Section 9 of the Securities Exchange Act of 1934, it is unlawful for one or more persons to effect "a series of transactions in any security registered on a national securities exchange or in connection with any security-based swap agreement with respect to such security creating actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others". With the invention and popularity of level II quotes, it is possible that a group of traders can see where a surplus of buy or sell orders is located, but as Section 9 makes clear, the manipulation of a security's price for the purpose of inducing purchase or sale of the security is illegal. An example of such market manipulation would be the practice known as "ghosting".

Stock exchanges such as the NYSE are required to enforce the provisions of the Securities Exchange Act of 1934, which cover not only market manipulation but also other matters such as misconduct on the trading floor, insider trading, customer-related sales practice violations and other types of abusive trading practices.

To learn more about market regulation, see Policing The Securities Market: An Overview Of The SEC.

RELATED FAQS
  1. What's the difference between primary and secondary capital markets?

    Learn how in the primary capital market, securities are issued for the first time, while in the secondary market, investors ... Read Answer >>
  2. What are the characteristics of a marketable security?

    Find out what it takes for a financial asset to be considered a marketable security, including its liquidity, intent of use ... Read Answer >>
  3. Does working capital include marketable securities?

    Learn how marketable securities such as Treasury bills (T-bills) and commercial papers are part of current assets and the ... Read Answer >>
  4. How do I know if I am buying unregistered securities or stocks?

    All securities, including stocks, bonds and notes, must be registered with the Securities and Exchange Commission (SEC) before ... Read Answer >>
  5. How does short selling help the market and investors?

    Find out how short sellers provide a service to the market by acting as a check against overvalued companies and exposing ... Read Answer >>
  6. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ... Read Answer >>
Related Articles
  1. Professionals

    Sales Presentations and Use of Sales Tools

    FINRA/NASAA Series 26 Section 7 - Sales Presentations and Use of Sales Tools. In this section prohibitions relating to interstate commerce and the mails and regulation of the use of manipulative ...
  2. Professionals

    Securities Exchange Act of 1934

    FINRA Series 6 Exam Study Guide - Securities Exchange Act of 1934. This section provides the definitions under the act of 1934, the creation of SEC, National Securities Exchanges and the fingerprinting ...
  3. Professionals

    Securities Exchange Act of 1934: Rule 10b-3

    Series 6, Section 8: Securities Exchange Act of 1934: Rule 10b-3. This section addresses rule 10b-3 of securities exchange act of 1934 which deals with employment of manipulative and deceptive ...
  4. Professionals

    Federal Covered Securities

    FINRA/NASAA Series 66 - Federal Covered Securities. This section explains federal covered securities and sample exam questions.
  5. Professionals

    Federal Covered Securities

    FINRA/NASAA Series 63 - Federal Covered Securities. This section defines and explains covered securities.
  6. Professionals

    Securities

    FINRA/NASAA Series 63 - Securities. In this section securities registration and three tests to determine when an investment contract is a security.
  7. Professionals

    Securities Registration

    Series 6, Section 8: Securities Registration. This page deals with Sections 5, 12, 17 and 23 under the Securities Act of 1933
  8. Professionals

    The Uniform Securities Act (USA) - Definitions Part 6

    FINRA/NASAA Series 63 - The Uniform Securities Act (USA) - Definitions Part 6. This section defines and explains the term "sale".
  9. A. Introduction: Securities Industries Rules and Regulations

    Federal and state securities laws, as well as industry regulations, have been enacted to ensure that all industry participants adhere to a high standard of just and equitable trade practices. ...
  10. Professionals

    Trading Securities

    Series 62
RELATED TERMS
  1. Securities Exchange Act Of 1934

    The Securities Exchange Act of 1934 was created to provide governance ...
  2. Manipulation

    The act of artificially inflating or deflating the price of a ...
  3. Security

    A financial instrument that represents an ownership position ...
  4. Painting The Tape

    A form of market manipulation whereby market players attempt ...
  5. SEC Form 1

    An application for and amendments to an application for registration ...
  6. Covered Security

    A class of securities, created by the National Securities Market ...

You May Also Like

Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center