Chapter 4

Preventing Stock Market Crises (II)

Regulating Trade-Based Price Lifting

Xin Yan

Lawrence R. Klein

Viktoria Dalko

Ferenc Gyurcsány

Michael H. Wang1

Inducing numerous trading volumes to follow in a short time period is the objective of the manipulator at the lift stage of the Accumulation-Lift-Distribution (ALD) scheme. Generating large price impact is the natural tactic to carry out the objective. However, after distribution of large quantities of accumulated shares, if no other large buy volumes enter trading in the stock, the share price will collapse; this may result in substantial losses for numerous investors and has the potential to lead to a stock market crisis. Large price impact can also be generated by heavy short selling or simply releasing large sell positions. Therefore, large price impact has to be regulated to protect investors, prevent crises, and maintain a stable stock market. This chapter, as a continuation of Chapter 3, focuses on price lifting in the ALD manipulation scheme and other related scenarios. For the purpose of surveillance and regulatory proposals, selected cases out of 103 prosecution cases from five regulatory agencies in both developed and developing economies are closely examined. The anatomy of trading activities of an investor during one trading day reveals nine variables that provide areas for surveillance and regulatory measures. The unified and practical approach based on the nine variables may be considered as solid candidates ...

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