Just a couple decades ago, our market infrastructure was dominated by only a handful of securities exchanges. Fast forward to the present day, and there are now 18 national securities exchanges registered with the Securities and Exchange Commission (SEC) under Section 6(a) of the Securities Exchange Act of 1934 (“Exchange Act”), 44 Alternative Trading Systems (ATS) and over 200 brokerdealers that internalize their customers’ trades. We have witnessed one of the greatest decentralizations of our market microstructures in the same period of time in which global derivatives markets have experienced unprecedented growth. What we are left with is an overly complex market, a ﬂourishing over-the-counter (OTC) and exchange traded derivatives market worth more than $700 trillion in outstanding notional value, and a financial system ripe for abuse. As our financial markets evolve, the types of trading activities used by market manipulators will adapt in response, and if regulators don’t follow these adaptations closely, the rules and regulations designed to protect investors from such manipulations risk becoming obsolete. With an already limited scope of application, prohibitions against market manipulations often filter manipulators who employ outright criminal means of manipulation, while letting those who use legitimate transactions to manipulate the market pass through the sieve. In this article, we will broadly discuss the inadequacies of enacted rules and regulations in addressing the current state of market manipulation in financial markets, and illustrate these shortcomings with real cases found under three main topics: open-market manipulations, information- based manipulation schemes, and order-based manipulations.
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