Spoofing is the act of entering visible non-bona fide orders with the intent to mislead other traders as to the true level of supply or demand in the market.

By entering a new best bid (offer), a spoofer is able to entice other buyers (sellers) to execute against his offer (bid) at a superior (inferior) price than he would otherwise obtain.

In a "naked" short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard two-day settlement period. As a result, the seller fails to deliver securities to the buyer when delivery is due; this is known as a "failure to deliver" or "fail."

Failures to deliver may result from either a short or a long sale. There may be legitimate reasons for a failure to deliver. For example, human or mechanical errors or processing delays can result from transferring securities in physical certificate rather than book-entry form, thus causing a failure to deliver on a long sale within the standard settlement period. A fail may also result from “naked” short selling.

Since market makers are responsible for maintaining orderly markets by providing liquidity and setting prices, a market maker naked short exemption exists to avoid disrupting these activities.

Market maker exemption:

Broker-dealers that make a market in a security generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers.

The market maker exception for naked short selling allows market makers to legally conduct short selling without actually delivering the security. This means that a market maker can place a sell order and not have the necessary shares on hand to settle the transaction, but must have the ability to locate and settle the order.

Layering is the act of placing multiple visible non-bona fide orders with the intent of creating a false impression of supply or demand, thereby pushing market prices to levels at which the participant can obtain opposite-side executions at more favorable prices than would have otherwise been possible.

Layering is one of the most common variants of spoofing. Visible buy or sell orders are entered with the intent to deceive other market participants as to the true amount of supply or demand in the marketplace. This scheme rests on the basic microeconomic principle that when more buyers appear, prices will go up, and when more sellers appear, prices will go down.

Layerers use this principle to control prices to their own advantage, causing fictitious buyers to appear (by entering bids) when they want prices to go up (so they can sell high), and causing fictitious sellers to appear (by entering offers) when they want prices to go down (so they can buy low).

Trades without a change in beneficial ownership.

One of the most common manipulation checks cited by regulators in enforcement actions is for wash trades. A wash trade is a trade with a single account on both sides of the trade, and a cross trade is a trade between two accounts within the same firm.

Because an investor could use riskless market transactions with himself to conceal the source of funds from subsequent transferees, wash trade detection has become an essential element of anti-money laundering (AML) surveillance.

When a trader enters a large auction-only order, and then enters multiple opposite-side continuous trading orders in an attempt to push the auction price in the direction favoring the trader’s auction-only order.

The SEC’s enforcement action against Athena Capital Research demonstrated the vulnerability of the opening and closing auctions to manipulation.

By entering large auction-only orders, and then entering continuous trading orders on the opposite side, a trader can push the auction price in the direction favoring the trader’s large auction-only order.

Obtaining market prints at the end of a trading session at prices that improve the valuation of a large held position.

This sends a positive signal to investors and market professionals, as the closing price helps guide the trend of the market. This is particularly effective as a way to influence computerized scans of the market and trading algorithms.

The performance of asset managers is usually measured by closing prices at the end of a particular trading session. In futures and other margin-based markets, closing prices determine margin calls. Closing prices are thus particularly attractive targets for market manipulators.

Marking the close and window dressing occurs when a trader holds a significant position in a thinly traded symbol and enters orders crossing the spread at or near the close of normal trading hours, in an attempt to cause the session to close at a price favoring the held position.

Quote stuffing is a form of market manipulation employed by high-frequency traders that involve quickly entering and withdrawing a large number of orders in an attempt to flood the market. This can create confusion in the market and trading opportunities for high-speed algorithmic traders.

Regulation SHO is a set of rules from the Securities and Exchange Commission (SEC) implemented in 2005 that regulates short sale practices. Regulation SHO established "locate" and "close-out" requirements aimed at curtailing naked short selling and other practices.

Rule 200 — Marking Requirements. Rule 200(g) requires that a broker-dealer must mark all sell orders of any equity security as “long,” “short” or “short exempt.” A sell order may only be marked “long” if the seller is “deemed to own” the security being sold and either: (i) the security to be delivered is in the physical possession or control of the broker or dealer; or (ii) it is reasonably expected that the security will be in the physical possession or control of the broker or dealer no later than the settlement of the transaction. The “short exempt” marking requirement applies only with respect to the short sale price test restriction.

Rule 201 — Short Sale Price Test Circuit Breaker. Rule 201 generally requires trading centers to have policies and procedures in place to restrict short selling when a covered security has triggered a circuit breaker by experiencing a price decline of at least 10 percent in one day. Once the circuit breaker in Rule 201 has been triggered, the price test restriction will apply to short sale orders in that security for the remainder of the day and the following day, unless an exception applies.

Rule 203(b)(1) and (2) — Locate Requirements. Rule 203(b)(1) generally prohibits a broker-dealer from accepting a short sale order in any equity security from another person, or effecting a short sale order in an equity security for the broker-dealer’s own account, unless the broker-dealer has: borrowed the security, entered into a bona-fide arrangement to borrow the security, or reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due. Rule 203(b)(2) provides an exception to the locate requirement for short sales effected by a market maker in connection with bona-fide market making activities.

Rule 204 — Close-out Requirements. Under Rule 204, participants of a registered clearing agency (as defined in section 3(a)(24) of the Exchange Act) must deliver securities to a registered clearing agency for clearance and settlement on a long or short sale transaction in any equity security by settlement date, or must close out a fail to deliver in any equity security for a long or short sale transaction in that equity security generally by the times described as follows: the participant must close out a fail to deliver for a short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement date, referred to as T+4; if a participant has a fail to deliver that the participant can demonstrate on its books and records resulted from a long sale, or that is attributable to bona-fide market making activities, the participant must close out the fail to deliver by no later than the beginning of regular trading hours on the third consecutive settlement day following the settlement date, referred to as T+6. In addition, Rule 203(b)(3) of Regulation SHO requires that participants of a registered clearing agency must immediately purchase shares to close out fails to deliver in “threshold securities” if the fails to deliver persist for 13 consecutive settlement days. Threshold securities, as defined by Rule 203(c)(6), are generally equity securities with large and persistent fails to deliver.

Pump and dump is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price.

In 2022 the U.S. Securities and Exchange Commission (SEC) uncovered on Monday a multi-year penny stock scheme that generated US$194 million in illicit proceeds, leading to charges against 15 individuals and one corporate consulting firm spanning three continents.

"Short and distort" is a type of securities fraud in which investors short-sell a stock and then spread negative rumors about the company in an attempt to drive down stock prices.

Often short and distort attacks involve spreading salacious or unfounded rumors or allegations and may involve the publication of a short report.

Longer term costs often include:

1. Increased litigation risk

2. Regulatory investigations

3. Long-term share price decline

4. Human capital: Executive & board turnover and difficultly recruiting high-quality candidates.

5. Diminished access to capital and deal terms

Stop-hunting is a strategy that attempts to force some market participants out of their positions by driving the price of an asset to a level where many individuals have chosen to set stop-loss orders.

Stop-loss hunting tends to happen more frequently in the AM of a lightly traded session and may be facilitated by stop-loss hunting algorithms.

Front running, also known as tailgating, is the prohibited practice of entering into an equity trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge of a large pending transaction that will influence the price of the underlying security.

A short squeeze is a situation in the stock market where investors who have sold stocks "short" are forced to close their positions because of rising prices. In a short squeeze, the price of a security rises sharply due to increased demand, which causes losses for those who had bet against it by selling it short. As an example, if Company ABC's stock was trading at $20 per share and some investors sold it short, hoping to buy it back later at a lower price, then a sudden increase in demand for the stock could cause its price to spike to $30. This would force those investors to close out their positions at a loss.

The Game Stop squeeze is the most well-known example. At its height, on January 28, a short squeeze caused Game Stop’s stock price to reach a pre-market value of over US$500 per share ($125 split-adjusted), nearly 30 times the $17.25 valuation at the beginning of the month.

A financier or lender typically agrees to loan a publicly-traded company some amount of cash. In exchange the lender takes a convertible debenture with typically a reasonable interest rate. These folks start lining up at the door when the stock begins to hit above $1 a share.

The unfortunate aspect that is not revealed in this process is that the money doesn’t come without a catch: the lender can convert his/her debenture at any time into shares of common stock. In typical fashion, such an offer will come without a predetermined number of shares but instead with a share conversion rate that is a moving target which is always less then the prevailing market rate. That way, when the “investor” (which I use very loosely) sells the shares s/he will always profit, even on the downside.