according to schweser, it’s fine for a market maker to artificially pump up liquidity of a security in exchange for favorable commissions as long as the deal is disclosed. it’s a violation for a portfolio manager to artificially pump up liquidity by trading between two accounts even if it benefits her clients and the procedure is disclosed. is it fair?
I think so - market maker’s job is to provide liquidity.
can the portfolio manager argue that he is doing the same in a market where there’s no market maker present?
I have had the same problem. I dont see how there is any market manipulation in the following example… “Exchange seeks to issue new bond futures contracts Exchange seeks to demonstate best liquidity by entering a contracts with members so they commit to a minimum volume on a new contract over a specific period or a reduction in commission. Liquidity of market is estimated by trading volume and bid ask spreads. Assuming contracts are not disclosed - this is market manipulation”. That’s pretty much word-for-word from the Schweser video lecture material. Is it just the fact that this information is not disclosed to the public - so the market cannot see the ‘true’ liquidity of the investment?
Yes, I believe b/c its not disclosed its market manipulation