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. 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 >>
  2. What are the Securities and Exchange Commission regulations regarding swaps?

    Learn how the SEC regulates trading of swaps, and how swap trading is moving from an over-the-counter market to centralized ... Read Answer >>
  3. How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. ... Read Answer >>
  4. According to the USA, it is unlawful for a person to offer to sell a security in ...

    a. the security is registered with Federal Reserve. b. it is a federal covered security, is exempted from registration, or ... Read Answer >>
  5. How do I evaluate a debt security?

    Look at a brief overview of the important factors to consider before purchasing a debt security, such as a corporate or government ... Read Answer >>
  6. How do marketable securities impact a company's financial statements?

    Understand how the various components of the financial statements are impacted by investments in marketable securities owned ... Read Answer >>
Related Articles
  1. Insights

    What's an Exchange?

    An exchange is an organized marketplace where securities and other financial instruments are traded.
  2. Personal Finance

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  3. Financial Advisor

    Succeeding At The Series 63 Exam

    Your career as a securities agent begins with this test. We'll show you how to score high.
  4. Investing

    How Deutsche Bank Market Manipulation Impacts Investors (DB)

    Explore the ramifications of Deutsche Bank's admission that it manipulated gold and silver from 2007 to 2014, including its similarities to other schemes.
  5. Investing

    How Financial Statements Are Manipulated

    Financial statement manipulation is an ongoing problem, and investors who buy stocks or bonds should be aware of its signs and implications.
  6. Insights

    China “Grand Champion” of Currency Manipulation, Trump Says

    Trump labels China the "grand champion" of currency manipulation.
  7. Investing

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.
  8. Insurance

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  9. Investing

    The Short and Distort: Stock Manipulation in a Bear Market

    High-quality stock reports needn't be confused with stock manipulators' dramatic claims.
RELATED TERMS
  1. Painting The Tape

    A form of market manipulation whereby market players attempt ...
  2. Securities Exchange Act Of 1934

    The Securities Exchange Act of 1934 was created to provide governance ...
  3. Covered Security

    A class of securities, created by the National Securities Market ...
  4. SEC Form S-8

    A filing with the Securities and Exchange Commission (SEC) that ...
  5. State Administrator

    The government agency or official who oversees and enforces state-level ...
  6. Holding The Market

    The practice of placing active or pending orders for a security ...
Hot Definitions
  1. Stagflation

    A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, ...
  2. Notional Value

    The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets ...
  3. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  5. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  6. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
Trading Center