More than eighty years after federal law first addressed stock market manipulation, federal courts remain fractured by disagreement and confusion about manipulation law’s most foundational questions. Only last year, plaintiffs petitioned the Supreme Court to resolve a sharp split among the federal circuits concerning manipulation law’s central question: whether trading activity alone can ever be considered illegal manipulation under federal law. Academics have been similarly confused—economists and legal scholars cannot agree on whether manipulation is possible in principle; let alone on how, if it is, to address it properly in practice.
This Article offers an analytical framework for understanding manipulation, which resolves these questions, clarifies federal law, and can guide regulators in successfully prosecuting financial law’s most intractable wrong. We draw on the tools of microstructure economics and the theory of the firm to provide a synthesis of the various distinct forms of manipulation, identify who is harmed by each form, and evaluate their social welfare effects. This Article thus lays the foundation for a renewed understanding of manipulation and its place within securities regulation.