What is Painting the Tape?

Painting the Tape is a type of Market manipulation where market players try to impact a security’s price by purchasing and selling it among a group to create the presence of significant trading activity.

The objective of painting the tape is to form a delusion of an increased interest in a particular stock to manipulate investors into buying the same, which will lead to an increase in the price of the shares.

Explaining Painting the Tape

This ‘painting the tape’ term had its origin in the previous era when the prices of stock were massively conveyed on a ticker tape. Initially, ticker tapes were used to print financial details of such trades that were sent through a telegraph.

This name was taken from the mechanical sound that came from printers operated for printing the narrow paper strip that comprised stock quotes. In the present scenario, there is an electronic version of ticker tape that is available and used.

Painting the Tape Example

Let’s take an example here. Suppose an ABC Trading Partners company regulated money for clients and offered advice on selling and buying of stocks. The CEO of this company wants to unload the penny stock known as XYZ Inc., which is trading at Rs. 100 per share.

But the CEO has bought the stock at Rs. 150 and would face losses if sold the shares at the current market price. As a result of this, he decided to manipulate trading practices to engage investors into buying the stock.

Throughout the day, the CEO got into several buy trades of XYZ’s stock, specifically when the price was increasing. He kept his active buying continued into the close of the trading day. Now, the trading activity amplified the daily trading volume for the company, which led to the stock closing at Rs. 250 per share.

This resulted in a spiked interest among investors toward this stock. And then, the ABC stock increased to Rs. 500 per share. With this strategy working out, the CEO sold everything. However, with the sale trades hitting the tape, the pricing started falling.

Investors who smelled the fishiness here tried selling their shares. In an instant, the stock prices of XYZ came down to Rs. 50 per share. While the investors were manipulated to buy the stocks; thus, bearing losses, the CEO doubled his investment with ease through painting the tape practice.