Part 2: Behind the Curtain – How Manipulation Works

Modern manipulation exploits high-speed trading and derivatives exposure. Here are the most commonly abused strategies: 1. Price Distortion via Cash-Derivative Synergy Traders push the price of an asset (like an index) by buying or selling large quantities. The goal isn’t necessarily profit from the asset itself—it’s to manipulate the value of derivative positions tied to it (e.g., futures, options). Example: Buy ₹1,000 cr of a stock to push the index up. Simultaneously hold short futures or put options that gain when the index later falls. 2. Marking or Gaming the Close This is common during options expiry or index rebalancing days. The last 30–60 minutes of trade determine settlement values. If you can control that pricing window, you control how options settle. Mechanism: Push index high during expiry day morning. Open large short positions via options/futures. Sell the earlier buys toward market close, dropping the index. Profit from the falling settlement price. 3. The Power of Speed Algorithmic trading allows players to: Analyze microstructure inefficiencies. Execute market-moving trades in milliseconds. Cancel or reposition orders faster than human traders can react. Manipulation often hides under a “strategic rebalance,” but the intent to deceive (key to manipulation) separates lawful strategy from fraud.