Painting
the tape is the illegal practice of making a sale for the explicit purpose of
changing the stock price. A fund manager might, for example, buy 100
shares of a stock at an unusually high price right before the market closes at
the end of the month. Then he can report that his entire long position in
that stock is worth that price. Brokers have even more control over the
tape. If they have two orders they can buy the stock from one customer at
one price then immediately sell it to another customer at a different price.
This
practice works because traditional analysis gives so much weight to some prints
while ignoring others. Most analysis gives a very high weighting to the
last print before the close. This value can be manipulated, especially in
low volume stocks and stocks with large spreads.
We
use statistical analysis to avoid this problem. When we see one small
print which does not correspond to the general trend, we throw that point
away. This applies to explicit manipulation, like painting the tape, and
to legitimate random noise in the market.
Although
someone can request alerts based on the close price, this is the
exception. Most of our alerts do not give strong weighting to any one
price, and they do not act differently when the market closes. If there
is a lot of volume after the market closes, we will continue to update the
alerts. Additionally the user can filter the alerts to remove stocks trading
on low volume or with large spreads. This allows the user to ignore
stocks which are easily manipulated.
Rif'atul Machmudah (11220027)
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