At Surveyor, we’re dedicated to helping firms navigate the landscape of market integrity. While wash trading has been widely discussed as a common form of manipulation, there are other sophisticated tactics firms need to understand and monitor. In this post, we focus on two strategies that can subtly distort market prices and mislead participants: layering and marking the close. 

We’ll explain how these practices work and why it’s important for firms to recognize and address them as part of a comprehensive trade surveillance approach. 

What is layering?

Firstly, let’s look at layering, a common form of market manipulation which accounts for approximately 38% of all non-compliance fines, according to data from Deloitte.  

Layering is a specific type of spoofing, which generally involves placing fake orders to create a misleading impression of market demand or supply. What sets layering apart is the placement of multiple non-genuine orders at incrementally better prices on one side of the order book (for example, progressively higher bids or lower offers).  

This creates the illusion of strong buying or selling interest, encouraging other market participants to react. The manipulator can then execute genuine trades at favorable prices influenced by this false market depth. 

Marking the close: explained

The term ‘marking the close’ refers to when traders attempt to artificially influence the closing price of a security.  

Practitioners manipulate prices up or down to benefit their positions, avoid margin calls, or impact portfolio valuations. This practice can illegally inflate (or deflate) investment fund performance metrics, which can be lucrative for fund managers whose compensation is tied to their fund’s performance relative to benchmarks or absolute returns. 

For compliance officers, detecting marking the close requires careful monitoring of unusual trading activity in the final minutes of a trading session. Key indicators include sudden price swings, spikes in volume, or clusters of trades that disproportionately impact the closing price. Implementing robust surveillance rules focused on end-of-day trading patterns can help identify and flag potential instances of marking the close, enabling timely investigations and regulatory reporting. 

Conclusion

Both layering and marking the close can raise red flags for regulators and contribute to broader concerns around market integrity. Even when unintentional, these patterns can expose firms to compliance risk and regulatory scrutiny. That’s why it’s important to have the right tools in place to monitor for unusual trading behavior and respond with confidence. 

Curious how Surveyor helps firms detect and investigate these types of activity? Let’s walk you through it, schedule a demo here.