The Doctrinal Quandary of Manipulative Practices in Securities Markets: Artificial Pricing, Price Discovery, and Liquidity Provision

Abstract

This Article sketches a frame of analysis for the doctrinal quandary of manipulative practices in securities markets, drawing on the historical origins of the concept of market manipulation and the realities of the modern electronic marketplace. The essence of market manipulation is maintained to be in artificial pricing based on market activity, as opposed to other indicia of “artificiality,” and this definitional approach is compared and contrasted to the process of price discovery and liquidity provision. The Article addresses several key themes relevant for today’s securities markets, such as the phenomenon of exploratory trading, market making and the role played by market makers, the doctrine of open market manipulation, spoofing / layering and disruptive trading, and the implications of the market structure crisis.

Keywords: market manipulation, artificial pricing, price discovery, liquidity provision, spoofing / layering, market structure crisis

JEL Classification: G18, K22