Curious Rami

After watching the following video of Max Keiser on Rigged Markets, I compiled a list of the definitions of questionable and illegal trading practices:

Bear Raid

The illegal practice of attempting to push the price of a stock lower by taking large short positions and spreading unfavorable rumors about the target firm.

http://www.investopedia.com/terms/b/bearraid.asp

Front Running

Front running is the illegal practice of a stock broker executing orders on a security for their own account (and thus affecting prices) before filling orders previously submitted by their customers. After the broker has made their original transactions, they can expect to close out their position at a profit based on the new price level. Front running may involve either buying (where the broker buys for their account, driving up the price before filling customer buy orders) or selling (where the broker sells for their own account, driving down the price before filling customer sell orders).

http://en.wikipedia.org/wiki/Front_running

Backdating

Dating any document by a date earlier than the one on which the document was originally drawn up. Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.

http://www.investopedia.com/terms/b/backdating.asp

Lookback Option

Call or put option whose strike price is not determined until the option is exercised. At the time of exercise, the holder can exercise the option at any underlying price that has occurred during the option’s life. In the case of a call, the buyer will choose the lowest price, and in the case of a put, the buyer will choose the highest price. The premium on such options tends to be high since it gives the buyer great flexibility, and the writer has to take on a lot of risk.

http://www.investorwords.com/2893/lookback_option.html

Wash Sale

An illegal transaction an investor makes by simultaneously buying and selling a security through two different brokers, thereby creating the illusion of activity. Investors do this to try and recognize a tax loss without actually changing their position.

http://www.investopedia.com/terms/w/washsale.asp

Blank-Check Company

A company in a developmental stage that either doesn’t have an established business plan or has a business plan that revolves around a merger or acquisition with another firm.

http://www.investopedia.com/terms/b/blankcheckcompany.asp

Kiting

1. The act of misrepresenting the value of a financial instrument for the purpose of extending credit obligations or increasing financial leverage.
2. A fraudulent act involving the alteration or issuance of a check or draft with insufficient funds.

http://www.investopedia.com/terms/k/kited.asp

Parking

A form of kiting shares that a brokerage commits by moving long positions in unrelated accounts to cover short positions that are improperly settled according to SEC regulations.

http://www.investopedia.com/terms/p/parking.asp

Painting The Tape

An illegal action by a group of market manipulators buying and/or selling a security among themselves to create artificial trading activity, which, when reported on the ticker tape, lures in unsuspecting investors as they perceive an unusual volume.

http://www.investopedia.com/terms/p/paintingthetape.asp

Market Timing

1. The act of attempting to predict the future direction of the market, typically through the use of technical indicators or economic data.
2. The practice of switching among mutual fund asset classes in an attempt to profit from the changes in their market outlook.

http://www.investopedia.com/terms/m/markettiming.asp

Spring Loading

A type of option-granting practice where options are granted at a time that precedes a positive news event. Since positive news typically causes the underlying company’s stock to surge in value, timing an option grant to precede the public newsrelease will allow the option-holder to receive an almost instant profit.

http://www.investopedia.com/terms/s/spring_loading.asp

Bullet Dodging

A form of option granting where the awarding of options is delayed until a piece of bad news is known to the public and the stock’s price falls. Since an option’s strike price is often determined by what the underlying stock’s price was on the grant date, waiting for the stock price to drop will allow the option holders to gain some additional benefit, in the form of a lowered strike price.

http://www.investopedia.com/terms/b/bullet_dodging.asp

Short Selling

The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.

http://www.investopedia.com/terms/s/shortselling.asp

Naked Shorting

The illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. However, some professional investors and hedge funds take advantage of loopholes in the rules to sell shares without making any attempt to borrow the stock.

http://www.investopedia.com/terms/n/nakedshorting.asp

Pump And Dump

A scheme attempting to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company’s stock, sell their position after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines. The victims of this scheme will often lose a considerable amount of their investment as the stock often falls back down after the process is complete.

http://www.investopedia.com/terms/p/pumpanddump.asp

Late-Day Trading

An unethical (if not illegal) practice of a hedge fund purchasing and then selling securities (usually shares of a mutual fund) after the close of a trading day, but making the transactions appear as though they occurred before the market close.

http://www.investopedia.com/terms/l/latedaytrading.asp