CM007 · Capital Markets

Pump and Dump

Pump and dump is coordinated promotion of a thinly-traded, low-float instrument to inflate its price on false or misleading enthusiasm, followed by distribution of the promoter's (and colluding accounts') position into the retail buying the promotion creates. The finding is a convergence finding: it lives in how concentrated the account's pre-promotion accumulation of the free float is, how large the burst of coordinated promotional activity around the campaign is, how far the peak price runs beyond the instrument's baseline, and how much of the position is distributed into retail once the price is inflated.

Article 12(1)(a) and 12(2)(a) of the EU Market Abuse Regulation (MAR) prohibit transactions or orders to trade combined with the dissemination of false or misleading information. Article 12(1)(c) prohibits securing a dominant position over the supply of or demand for a financial instrument combined with distortive effects on its price. CM007 detects the trading-side signature of both.

Risk indicators

Accumulation Concentration

• Free-float share accumulated materially larger than a passive market position
• Accumulation concentrated in a single thinly-traded instrument ahead of promotion
• Position built quietly, ahead of any public promotional activity

Promotional Coordination

• Burst of coordinated posts, messages or accounts around a single campaign
• Promotional content inconsistent with the instrument's public disclosures
• Coordination frequency inconsistent with organic retail interest

Price Inflation

• Peak price materially above the instrument's pre-campaign baseline
• Price spike timed tightly to the promotional burst
• Price action inconsistent with any underlying corporate news

Distribution Into Retail

• Volume distributed into retail disproportionate to the account's total position
• Distribution timing tightly coupled to the peak of the promotional campaign
• Retail buying concentrated in the window the price is inflated

Investigation actions

1. Resolve the trader, the instrument and the promoter.
2. Compute the accumulation concentration (share of the free float accumulated pre-promotion).
3. Count the coordinated promotional posts/messages/accounts identified around the campaign.
4. Compute the price inflation ratio (peak price / pre-campaign baseline price).
5. Compute the distribution into retail ratio (volume sold to retail / total position).
6. Score each of the four components against its band cut-lines.
7. Aggregate the weighted exposure score; escalate at or above the threshold.

Related typologies

Curated from fc-07-capital-markets-analytics-toolkit/typologies/CM007_Pump_and_Dump.md