What is Painting The Tape
Painting the tape is a form of market manipulation whereby market players attempt to influence the price of a security by buying and selling it among themselves to create the appearance of substantial trading activity. Painting the tape is an illegal activity that is prohibited by the Securities and Exchange Commission because it creates an artificial price. The term originated in a bygone era when stock prices were largely transmitted on a "ticker tape."
BREAKING DOWN Painting The Tape
Market manipulators know that high trading volumes in a security often attract the attention of investors. Painting the tape increases volume and attracts investors, who then may push a price higher. The market manipulators who have painted the tape will then sell their holdings — often acquired at much lower prices — to investors unaware of the manipulation. These investors are left "holding the bag" once the manipulation ceases and the price of the stock declines steeply.
Market manipulators may paint the tape near the market's close in an attempt to boost a stock's price substantially at market close. Closing prices are widely reported in the media and are closely watched by investors, and since most securities are valued on the basis of their closing prices, manipulators use this tactic to achieve a higher market value for their holdings.