Hey Dan,
I do wonder though about the audit trail, and if it really is all that easy to detect if someone, or cooperating someones, is painting.
"Tape painting" is a manipulative activity which contemplates (a) market participant(s) trading either with itself or other market participants in an organized fashion in order to create an appearance of genuine trading interest. For this reason, when such actually occurs, it's typically seen in very thin, small issues - bulletin board stocks, and the like. That's not to say, as I told Davis, that it couldn't happen in other issues, by any means, but in highly liquid issues the number of transactions, the large number of participant and the interests the represent, and the wide range of transaction sizes would inherently make any endeavor to "paint" the tape an extremely ambitious one at best, LOL.
It should be noted that merely moving ones' bids and offers around does not, in and of itself, constitute tape painting.
As for detecting a firm trading against itself, I'm aware that for any trade that goes through ACT where the originating party's MPID is on both sides of the transaction (that is to say, whether or not an ECN is used), an alert is sent to the regulators.
And, while it'd surely be harder to detect cooperating parties - particularly, as I previously mentioned, because the issues lending themselves to such, bulletin board and Pink Sheet issues which are still traded over the phone and do not have ECN participation yet (not being SelectNet eligible) - the regulators have for years employed electronic monitoring (StockWatch was one, and in some form is probably still the basis for that which is still in use) devices to monitor telltale volume and trade size patterns which may raise red flags as to sudden, or pronounced, interest and activity.
When the rollout of OATS (the Order Audit Trail System) is complete, the next iteration of electronic compliance surveillance will be in place.
Are these measures failsafe? No. Do these types of violations still occur? Sure - and they always will. But that's the nature of any complex system, whether it's mechanical, chemical, economic, organizational...etc.
LP. |
