A Taxonomy of Financial Market Manipulations: Establishing Trust and Market Integrity in the Financialized Economy Through Automated Fraud Detection

19 Pages Posted: 24 Apr 2018

See all articles by Michael Siering

Michael Siering

Goethe University Frankfurt Faculty of Economics and Business Administration

Benjamin Clapham

Goethe University Frankfurt Faculty of Economics and Business Administration

Oliver Engel

Independent

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: March 2017

Abstract

Financial market manipulations represent a major threat to trust and market integrity in capital markets. Manipulations contribute to mispricing, market imperfections and an increase in transaction costs for market participants and in costs of capital for issuers. Manipulations are facilitated by increased transaction velocity, speculative trading and abusive usage of new trading technologies, i.e., they are directly linked to financial sector changes that drive financialization. Research at the intersection of financialization and IS might support regulatory authorities and market operators in improving market surveillance and helping to detect fraudulent activities. However, confusing terminology is prevalent on financial markets with respect to different manipulation techniques and their characteristics, which hampers efficient fraud detection. Furthermore, recognizing manipulations is challenging given the large number of information sources and the vast number of trades occurring not least because of high-frequency traders. Therefore, automated market surveillance tools require a comprehensive taxonomy of financial market manipulations as a basis for appropriate configuration. Based on a cluster analysis of SEC litigation releases, a review of the latest market abuse regulation and academic studies, we develop a taxonomy of manipulations that structures and details existing manipulation techniques and reveals how these techniques differ along several dimensions. In a case study, we show how the taxonomy can be utilized to guide the development of appropriate decision support systems for fraud detection.

Keywords: financial market manipulation, market surveillance, taxonomy, fraud detection, decision support

Suggested Citation

Siering, Michael and Clapham, Benjamin and Engel, Oliver and Gomber, Peter, A Taxonomy of Financial Market Manipulations: Establishing Trust and Market Integrity in the Financialized Economy Through Automated Fraud Detection (March 2017). Journal of Information Technology, Vol. 32, Issue 3, 2017. Available at SSRN: https://ssrn.com/abstract=3160740 or http://dx.doi.org/10.1057/s41265-016-0029-z

Michael Siering (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

Benjamin Clapham

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

Oliver Engel

Independent ( email )

No Address Available

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=478

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