Pump and dump

Definition

taking of a long position and then undertaking further buying activity and/or disseminating misleading positive information by the attraction of other buyers. When the price is at an artificial high level, the long position held is sold out.

Surveillance

Effective implementation of surveillance alerts for Pump and dump requires capturing the following trade data:

  • trade data and position data

  • communications data

Effective surveillance for pump and dump behaviour usually requires a combination of transactional and communications analysis. Pump and dump is very similar to trash and cash but executed in a buy direction (i.e. for long positions).

Reference

The Wolf of Wall Street

One of the most notorious pump-and-dump schemes in microcap stocks. A fascinating story, now also an award-winning motion picture.

Regulatory source

Taking of a long position in a financial instrument, related spot commodity contract, or an auctioned product based on emission allowances and then undertaking further buying activity and/or disseminating misleading positive information about the financial instrument, related spot commodity contract, or an auctioned product based on emission allowances with a view to increasing the price of the financial instrument, related spot commodity contract, or an auctioned product based on emission allowances, by the attraction of other buyers. When the price is at an artificial high level, the long position held is sold out — usually known as ‘pump and dump’

COMMISSION DELEGATED REGULATION (EU) 2016/522, Annex II, Section I, 4 (c)