The latest episode of stock market cheating by high-frequency
traders (HFT) has set in, yet unanswered questions remain. Do
regulators like the Securities and Exchange Commission (SEC)
encourage market manipulation?
Manipulation refers to the dishonest activity by individuals or
institutions who try to game the price of a stock (NYSEARCA:IVV) or
a certain market for their own financial gain. Wall Street
(NYSEARCA:IAI), in its constant pledge to innovate, has introduced
various versions of manipulation, like pumping and dumping, bear
raiding, and painting the tape. There's no sense in naming specific
manipulators or their ghastly deeds, because tomorrow's generation
of gypsters will no doubt surpass them.
Sadly, it appears the SEC hasn't been setting a very good
example for Wall Street (
) when it comes to obeying its own rules on stock market
In my book
Gents with No Cents: A Closer Look at Wall Street, its
Customers, Financial Regulators, and the Media
, I wrote:
"The Securities Exchange Act of 1934 Section 9 strictly
prohibits all securities manipulation. There are no ifs, ands, or
buts about the application of this rule, and even the least
seasoned Wall Streeter knows it. Nobody is above the law,
allegedly. Yet it has come to the author's belated
attention that the very police force that invented this rule is
Are not regulators who ban legitimate short selling, for
whatever reasons, breaking their own rules by creating a rigged
one-way market with artificially inflated prices? If that's not
the definition of market manipulation, what is? And what can be
said about similar efforts like Operation Twist or the mysterious
existence of the Plunge Protection Team?
Why do securities rules apply to everyone but the
police? How can a "free market" without underhanded interference
really be free, if it isn't free? Are the police really police?
Who's policing the police?"
Clearly, the SEC isn't just unable to enforce its own rules, but
live by them too.
Furthermore, the shocking revelation in Michael Lewis' book
Flash Boys that the SEC deliberately protected the unlawful
interests of Wall Street HFT firms ahead of the investing public's
interests shows an epic pattern of failure by the cops. When
the SEC told Brad Katsuyama to get out of the way of HFT firms, it
sided with stock market cheaters. This one example alone, and
there are many others, is damning proof that regulators have in
fact encouraged market manipulation.
Is it any wonder why I liken Wall Street's regulators to
ineffective scarecrows? (See cartoon above) Despite all the
tough talk of maintaining a fair and orderly market, the
crows always get their way.
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