Who knows the NASDAQ code? And how Manipulation can be done if you know how Markets print price?

Here are some notable examples from the past where knowledge or manipulation of market systems, including the “code” or mechanisms behind price printing, came into play:


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1. Nasdaq’s SOES Scandal (1990s)

What Happened:
Day traders exploited the Nasdaq Small Order Execution System (SOES), which was designed to help small retail investors execute trades quickly.

They figured out how to “game” the system by front-running institutional trades using faster access to price updates.


Key Takeaway:
This shows how knowledge of market infrastructure (even without direct code access) can be leveraged to gain an edge.



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2. Flash Crash (May 6, 2010)

What Happened:
The Dow Jones Industrial Average plummeted nearly 1,000 points in minutes, partly due to algorithmic trading systems.

A single trader, Navinder Singh Sarao, used a technique called “spoofing” (placing large fake orders to manipulate prices).

He exploited flaws in how prices were printed in the order book and how algorithms reacted to them.


Key Takeaway:
Knowledge of how market systems and price printing algorithms interact allowed manipulation of price movements on a massive scale.



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3. Knight Capital Incident (2012)

What Happened:
Knight Capital, a major market-making firm, lost $460 million in 45 minutes due to a software glitch.

A bug in their trading algorithm sent erroneous buy and sell orders, causing artificial price movements in certain stocks.

The issue arose from faulty deployment of new code.


Key Takeaway:
Errors or vulnerabilities in price-printing systems can have catastrophic consequences when not properly tested.



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4. Libor Scandal (2008–2012)

What Happened:
Traders at major banks manipulated the London Interbank Offered Rate (Libor), a benchmark interest rate.

They colluded to submit false data, which affected price benchmarks for trillions of dollars in financial instruments.


Key Takeaway:
While this didn’t involve market code directly, it highlighted how control over price-setting mechanisms could be exploited.



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5. Spoofing and Market Manipulation Cases

Michael Coscia (2015):
The first person convicted under the anti-spoofing provisions of the Dodd-Frank Act.

Coscia used HFT algorithms to place and cancel large orders to manipulate price movements.


JP Morgan Metals Desk (2020):
Traders manipulated gold and silver prices through spoofing, exploiting knowledge of market reactions to fake orders.

Key Takeaway:
These cases demonstrate how understanding price printing and order matching can enable market manipulation.



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6. Robinhood “Free Trades” Controversy (2021)

What Happened:
Robinhood faced criticism for its payment for order flow (PFOF) model, where it routed retail trades to market makers like Citadel.

Critics argued that price printing and execution quality were not optimal for retail traders, favoring market makers.


Key Takeaway:
While not a direct coding issue, this highlighted the opacity of price execution mechanisms.



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7. Crypto Market Manipulations

Mt. Gox Collapse (2014):
Price manipulation was linked to bots (e.g., Willy Bot) that inflated Bitcoin prices artificially.

FTX Collapse (2022):
Allegations surfaced that FTX and Alameda Research manipulated crypto prices using insider knowledge and control over exchange mechanisms.

Key Takeaway:
Crypto markets, often less regulated, have seen numerous examples of price manipulation due to centralized control or poor coding practices.



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Summary

These examples illustrate how understanding or exploiting the mechanisms (or flaws) behind price printing—whether through code, algorithms, or operational procedures—has historically impacted markets. They highlight the critical need for robust system design, regulation, and oversight.