Painting the tape is a type of market manipulation in which investors collude to buy and sell a security among themselves, thereby creating the illusion of heavy trade activity. The uptick in activity can cause the security to attract attention from other investors, artificially driving up the price. The market manipulators then sell their shares at the inflated price, leaving the outside investors “holding the bag” when the price drops back down to normal levels after the end of the manipulation period.
Painting the tape is highly illegal and its prohibition is strictly enforced by the SEC. The term derives from the now-outdated practice of stock prices being transmitted on ticker tape. Manipulators engaged in this practice will often wait until near the end of the trading day to begin buying and selling since a security’s closing price is widely reported in the media and watched by investors.
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