Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis - II - Question Paper

a few of the ways of meddling the market intergrity are as under:

Dabba Trading

It is a parallel stock market where punters take positions with the prices in the regular market as references. The contracts, sealed orally in the kapli system (merely writing the amounts on a scrap of paper which serve as contract notes), are accepted for a day or a week.

Circular Trading

A fraudulent trading scheme where sell orders are entered by a broker who knows that offsetting buy orders, the identical number of shares at the identical time and at the identical price, either have been or will be entered.



Insider Trading

SEBI describes Insider trading as any trading by a person who is or was connected with the company or is deemed to have been connected with the company and who is reasonably expected to have access, by virtue of such connection, to unpublished price sensitive info in respect of securities of the company, or who has received or has access to such unpublished price-sensitive info.

Front Running

This occurs when a broker, knowing that his client is about to trade, trades ahead of him in the identical or a related security. This is a clear conflict of interest because the broker knows that the client may push the security price in the direction of the trade. If this happens, the broker obtains that he has bought in (or sold out) only to obtain the security subsequently rising (or falling) in price. In addition, the customer, coming in later, may receive a less advantageous price should his broker’s trade have moved the price against him.

Pump and Dump

A highly illegal practice occurring mainly on the Internet. A small group of informed people buy a stock before they recommend it to thousands of investors. The outcome is a quick spike in the price followed by an equally quick downfall. The people who have bought the stock early sell off when the price peaks.
Corners and Squeezes

Suppose that long (or colluding group of longs) corners the market by acquiring a claim to more than 100% of the physical supply. In this case, the shorts will have to buy from the cornering long to close out his position. The cornering long will squeeze the shorts by charging them a very high price to do so.

Capping and Pegging

Capping (pegging) is a manipulation of the underlying asset price, which prevents (forces) an expiring choice from finishing (to finish) in-the-money. If an investor has a very large choice position, even though such a manipulation may create losses in the underlying asset market, these losses can be more than offset by profits in the choices market. Here we have 1 of the reasons for position limits and exercise limits.

Earning:   Approval pending.