Did you know that you are not allowed to simultaneously be the buyer and seller in a single transaction on a stock exchange?
Market manipulation occurring in this way comes with the threat of a fine.
Crossings are also known as wash trades or self-dealing. All of these terms describe the same situation: the same person still remains the beneficial owner of the same security once a sell and buy order has been been settled on a stock exchange.
They occur particularly frequently towards year-end during weak phases of the business cycle, where stock exchanges are faltering: Crossings by retail investors are often conducted with the intention of offsetting tax losses.
Why are crossings forbidden?
Crossings on stock exchanges are forbidden because they can artificially change the price of a security. This process may constitute a forbidden market manipulation.
Transactions that give off “false or misleading signals”, or which artificially change the price, and therefore the value of a security, give rise to forbidden market manipulation.
Crossing transactions can be used to simulate an increased trading volume that does not actually exist. This can mislead other investors, especially in thinly traded stocks and penny stocks, about the actual demand and adversely affect their investment decision. Fraudsters are able able to use crossings in order to make securities visible, and to advertise them.
Penny stocksShares with a low price, which is usually below one Euro a share.
Limit OrderAn order where there is a defined price limit
How can I avoid crossings?
- When placing buy and sell orders, ensure that buy and sell orders placed in close proximity to one another do not have crossed order limits (e.g. including identical limits or cross orders combined with an “at best” order code) that might lead to their reciprocal execution on the stock exchange.
- Do not place any crossed orders after the close of trading on the exchange, that might result in self-dealing occurring in the opening auction of the following trading day.
- Do not use crossings as a substitute for transfers between securities accounts.
At Best orderAn order without a price limit when it is intended to be executed as quickly as possible for the best possible price
Trading timeTime within a trading day, within which orders are entered into the trading system and transactions are executed in the trading system
What does the FMA do in this regard?
Within its ongoing market monitoring, the FMA checks whether crossings are being executed and sanctions manipulative conduct in the
trading venue. The FMA punishes administrative offences with in some cases severe fines.