Colluding in the after-market of an initial public offer

Definition

Buying of positions, also by colluding parties, on the secondary market, after the allocation in the primary market in order to post the price to an artificial level and generate interest from other investors where colluding parties are involved. Additional indicators may include:

  • unusual concentration of transactions and/or orders to trade, whether generally, or by only one person using one or different accounts, or by a limited number of persons;

  • transactions or orders to trade with no other apparent justification than to increase the price of or to increase the volume of trading, namely near to a reference point during the trading day, for instance at the opening or near the close

Surveillance

Effective implementation of surveillance alerts for colluding in the after-market of an initial public offering requires capturing the following trade data:

  • trade data

  • volume in relation to market

  • information on primary offerings

  • external communications data

External communications surveillance may support detection of collusion with other market participants. In the absence of communications alerts, trade alerting logic could take into account known initial public offerings in order to increasing sensitivity to unusual volumes following the IPO.

Collusion after an initial public offering can involve wash trades and painting the tape.

Regulatory source

Buying of positions, also by colluding parties, of a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances, on the secondary market, after the allocation in the primary market in order to post the price to an artificial level and generate interest from other investors — usually known, for example in the equity context, as colluding in the after-market of an Initial Public Offer (IPO) where colluding parties are involved. This practice may also be illustrated by the following additional indicators of market manipulation:

  • unusual concentration of transactions and/or orders to trade, whether generally, or by only one person using one or different accounts, or by a limited number of persons;

  • transactions or orders to trade with no other apparent justification than to increase the price of or to increase the volume of trading, namely near to a reference point during the trading day, for instance at the opening or near the close;

COMMISSION DELEGATED REGULATION (EU) 2016/522, Annex II, Section I, 1 (a)