Painting the tape

Definition

entering into orders to trade or engaging in a transaction or series of transactions which are shown on a public display facility to give the impression of activity or price movement in a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances

Surveillance

Effective implementation of surveillance alerts for painting the tape requires capturing the following trade data:

  • order data including unexecuted trades

  • trade data

  • price data

Painting the tape can be related to wash trades and circular trading. Detection of this behaviour is challenging when no trades can place as it requires proving that quotes or orders were posted without an intention to trade. Addition risk weighting can be placed on sensitive periods such as end of day, month, quarter and year, when interested parties may be trying to influence closing prices in less liquid instruments to manipulation valuation of their positions.

Painting the tape can also be used to create inflated price levels after an initial public offering.

Regulatory source

Entering into orders to trade or engaging in a transaction or series of transactions which are shown on a public display facility to give the impression of activity or price movement in a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances — usually known as ‘painting the tape’.

COMMISSION DELEGATED REGULATION (EU) 2016/522, Annex II, Section I, 3 (b)