Painting the Tape is a form of market manipulation that is illegal and prohibited by the Securities Exchange Commission (SEC). It is a more sophisticated method than the classic pump and dump scheme, as it has greater success in deceiving investors and deceiving the public at large and giving the perpetrator advantage over other market players.

The strategy of Painting the Tape is for a group of market participants, usually referred to as the “painters”, to simultaneously purchase and sell a security with the intent to artificially inflate the price. This can be done in numerous ways with the main underlying goal of creating a false and misleading signal to the market as a whole.

Painting the Tape is accomplished by flooding the market with both buy and sell orders at the same time. These orders are placed in rapid succession and at different prices, allowing the painters to drive up the price of the security without having to purchase it first, which would be the case with a pump and dump scheme. By buying and selling rapidly, the painters are able to create the appearance of increased market activity and liquidity, when in fact, the liquidity and consequent prices are being driven by the painters, and not a result of true market demand.

Painting the Tape is viewed as an unethical and illegal practice by the SEC as it can create an artificial price in the security, and also hurts the investing public who may be fooled by the artificially inflated prices. Furthermore, the painters can position themselves to take advantage of the inflated prices and dump their holdings before the “paint job” fades away.

Since market manipulation is a blatant violation of securities laws, it carries harsh penalties, including the threat of civil and criminal sanctions, fines, and imprisonment. Investors should be aware that although the motive of Painting the Tape is typically to drive up the price of a security, it can also be used to drive its price downward. Investors need to do their due diligence before entering a trade in order to ensure that they are not fooled by Artificial Price Movements.