Chinese-based day traders are taking increasingly sophisticated steps to manipulate stocks traded on US markets, according to a surveillance firm executive. Research and analysis conducted by Eventus Systems, a compliance, surveillance, and risk management firm, has detected regular instances of manipulation by Chinese-based traders trading predominantly Chinese companies listed on US stock exchanges. Travis Schwab, co-founder and CEO of Eventus Systems, said traders use a complex scheme involving multiple brokers to execute buys and sells of various stocks on multiple exchanges to avoid detection. Eventus is developing a tool called Relationship Finder, to filter and decipher trading patterns and activities, using a diverse set of data. “We see manipulation every day, spoofing and layering activities,” said Schwab, in an interview at the FIA Boca conference. “But with the cross-firm, cross technology platform, cross market, we’ve seen up to 12 different parties involved in market manipulation schemes. That’s 12 different accounts doing the manipulation.” He said the Financial Industry Regulatory Authority (FINRA) is aware of the practice but it is difficult to suss out the participants doing the market manipulation. The fragmented US securities markets, with dozens of exchanges, dark pools and alternative trading systems, makes it hard, even with the consolidated audit trail (CAT), to trace misbehavior. Adding to that is the ability for individuals to quickly close an account and open another elsewhere. Schwab said one of the problems is that brokers often have no way to tell they are being used to manipulate markets because one broker may be used only to buy stocks, while another is used to sell stocks. So one broker may have no idea who the other brokers are yet still may be held responsible for not having the right compliance structure in place. Exchanges themselves only know what stocks are being traded on their platform. Schwab said Eventus has a good sample set of clients which helps it examine various relationships within the markets. “We’re able to sniff out these relationships that you would not be able to do if you were just looking at one firm,” Schwab said. While the ongoing behavior is centered on Chinese stocks listed on US exchanges, the broader concern is that the practice may spread to other securities. There conceivably could be a case in which stocks in benchmark indices could be moved, leading to a ripple effect on other markets such as options or futures. Schwab believes the market manipulation is much more easily done on stock markets than on futures markets, which often have one central pool of liquidity that is easier to monitor. “It is a pretty challenging problem,” he said.
Like to point out... Far from just Chinese Traders, article is a little biased It's pretty rampant and obvious what is going on at this point
A lot of money flowing into bonds this year, and mostly weekly outflows of Equities since start of year, yet Indexes are flying... Futures are easily manipulated through spoofing ( downside or upside ), this has always been done... January 25th is one example, SPY, IVV and VOO had outflows of 9.36 Billion for the day, yet it was up 17 points with 96 million as a Volume There was clearly a lot of exits that day, but algo manipulation made the SPY Index seem like just another day
Something that has a dollar volume in a hundreds of millions is very hard to manipulate unless you are the government. With regards to spoofing, the price movement that it achieves is usually a single tick and it is primarily gaming other algos. The idea is to submit a smaller order on one side and to show a large order on the other side, thus fake book pressure. This causes other HFT players to both pull their orders (so the spoofer gets queue priority to get non-HFT aggressive orders) and possibly aggress on the other side (thus filling the spoofer directly). Once that happens, the spoofer would cancel the fake order and join the other side to lock in the profit. In any case, spoofing in the ES futures is not as common as people think - market makers have a quote to fill statistic and anyone with a lower fill to order ratio is promptly investigated. It does happen a fair bit more in less liquid and more fragmented markets (like ADRs, in this case). There are two problems with your reasoning. First of all, the spooz volume usually outsizes the ETF volume in dollar terms. E.g. if the ETFs traded a 100 million cumulatively it is just 28 billion in dollar terms (280 * 100*10^6), while the spooz would trade ~3 million and that would be 420 billion (2800 * 50 * 3 * 10^6). Secondly, ETF inflows/outflows have very little predictive value these days, for a variety of reasons (which is a separate topic, albeit an interesting one).
All the more reasons to improve transparency and organizational structure of exchanges. It is quite perplexing that "Exchanges themselves only know what stocks are being traded on their platform.". Way back when during the haydays of daytrading during the tech bubbles, all of the ECN's and platforms display dealer codes along the price quote so everybody knows exactly who is trading what at which level. What happened to that? How is it that after 20+ years exchanges now only know what stocks are being traded on their platform and nothing else?
To be fair, that's not true. Reg NBBO ensures that they have a clue, of course. But why would you lose a good customer, even if he is (maybe) a manipulator?
It's the exchanges issue in this case obviously. Like I said, It should be able to know what's going on and who's trading what and what level. And all those fragmentation of the exchanges, even without those pesky manipulators, they are still inefficient.
Manipulators can be from anywhere and not just Chinese based. They have multiple accounts, and they work as a group to shape the chart so as to attract foolish ( AND also smart ) traders. Typically manipulators trade those stocks that are most likely low price, low volume. Manipulators are smart people. They know what we traders are looking for. So we need to be as smart as these manipulators in order to earn $$$. If you see volume suddenly pick up, then be on high alert. Because it is quite straight forward to trade such stocks. Trading will be based on technical analysis and zero fundamental analysis. Always be somewhere in the first few position of the herd. If you are too slow to enter , too slow to exit, most likely you will suffer serious consequences. Similarly for non manipulated markets, if you are too slow to enter , too slow to exit, most likely you will suffer serious consequences. so if you lose money, don't blame the market.