What is painting on tape?
Painting the tape is a form of market manipulation by which market players attempt to influence the price of a security by buying and selling it among themselves to create the appearance of substantial commercial activity.
Key points to remember
- Painting the tape is a type of market manipulation by which market players try to influence the price of a security at the expense of investors.
- The painting of the ribbon increases the volume and attracts investors, who could then drive up prices. Market manipulators will then sell their assets to investors who ignore the manipulation.
- This is an illegal activity and prohibited by the SEC because it creates an artificial price.
Two common goals of ribbon painting are to attract unsuspecting investors to a security and get a high closing price.
Understanding ribbon painting
Painting the tape is an illegal activity prohibited by the Securities and Exchange Commission (SEC) because it creates an artificial price. The term was born in a bygone era when stock prices were widely transmitted over a ticker.
Marketers know that high volumes of securities trading often attract the attention of investors. The painting of the ribbon increases the volume and attracts investors, who could then drive up prices. The market manipulators who painted the ribbon will then sell their holdings – often acquired at much lower prices – to investors ignorant of the manipulation. These investors are left to “hold the bag” once the manipulation stops and the share price drops sharply.
Manipulators can paint the tape near the close of the market in order to significantly increase the stock price at the close of the market. Closing prices are widely reported in the media and closely watched by investors. Since most securities are valued on the basis of their closing prices, manipulators use this tactic to obtain a higher market value for their holdings.