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Quote-Based manipulation of illiquid securities

Author

Listed:
  • Chau, Ching
  • Aspris, Angelo
  • Foley, Sean
  • Malloch, Hamish

Abstract

We document the effects of a manipulation akin to marking the close, conducted without any manipulative trades. Using prosecuted cases, we examine how manipulators can utilize periods of order-book illiquidity to navigate ill-conceived market design rules and influence security prices. Reference pricing, which has gained significant attention recently in interest rate and metals markets, is shown to contribute to significant increases in end of day returns for affected securities, with no observable subsequent reversals. We show that the price effects continue in the manipulated direction over extended periods, with average excess returns over 80% in the six months after manipulation.

Suggested Citation

  • Chau, Ching & Aspris, Angelo & Foley, Sean & Malloch, Hamish, 2021. "Quote-Based manipulation of illiquid securities," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612319313595
    DOI: 10.1016/j.frl.2020.101556
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    References listed on IDEAS

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    Cited by:

    1. Aquilina, Matteo & Foley, Sean & O'Neill, Peter & Ruf, Thomas, 2024. "Sharks in the dark: Quantifying HFT dark pool latency arbitrage," Journal of Economic Dynamics and Control, Elsevier, vol. 158(C).
    2. Matteo Aquilina & Sean Foley & Peter O'Neill & Matteo Thomas Ruf, 2023. "Sharks in the dark: quantifying HFT dark pool latency arbitrage," BIS Working Papers 1115, Bank for International Settlements.

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    More about this item

    Keywords

    Benchmarks; Closing price manipulation; Marking the close;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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