Marking the close is a trading practice where a trader manipulates the price of a security or asset by executing a large volume of trades at or near the closing price of the market. This manipulation can influence the closing price and benefit the trader’s positions. Marking the close is considered unethical and is subject to regulatory scrutiny and enforcement actions to maintain market fairness.
How the Manipulation Is Executed
Marking the close typically occurs in the final minutes of the trading session, when traders execute a high volume of trades—often at aggressive prices—to influence the closing price of a security. This closing price is significant because:
It is used as a valuation benchmark for portfolios, funds, and indices
It influences investor perception of the day’s performance
It determines settlement values, especially for derivatives or structured products
It may trigger stop-loss orders or algorithmic trading actions
Manipulators may buy or sell disproportionately to their normal activity level, creating artificial demand or supply pressure to push the price in their desired direction, just before the market closes.
Motivations Behind Marking the Close
There are various reasons why traders or institutions may engage in this form of market manipulation, including:
Boosting the performance of a portfolio manager’s holdings at month- or quarter-end to enhance performance metrics (also known as “portfolio pumping”)
Influencing benchmarks for options, swaps, or futures that are settled based on the closing price
Misleading counterparties or investors in thinly traded or illiquid securities
Creating favorable conditions for margin calls, loan agreements, or regulatory capital assessments
In some cases, marking the close is used in conjunction with other manipulative strategies like spoofing or wash tradingto maximize effect.
Regulatory Focus and Legal Implications
Regulators treat marking the close as a form of market abuse or manipulation, particularly under:
Market Abuse Regulation (MAR) in the EU
Securities Exchange Act Rule 10b-5 in the United States
Financial Conduct Authority (FCA) rules in the UK, where it is considered a breach of market conduct standards
IOSCO Principles on fair and efficient markets
Enforcement agencies globally have investigated and penalized traders, brokers, and institutions found engaging in this activity. Consequences may include:
Fines and disgorgement of profits
Regulatory sanctions or bans
Criminal prosecution in cases of intentional fraud
Reputational damage for firms involved
Many high-profile enforcement actions have involved asset managers or proprietary trading desks manipulating illiquid securities or small-cap stocks at month-end.
Detection and Surveillance Techniques
To prevent and detect marking the close, financial institutions and exchanges rely on:
Market surveillance systems that monitor trading patterns near the close
Volume and price spike analysis in relation to historical behavior
Trade-to-close ratios to assess abnormal end-of-day activity
Cross-security correlation for identifying manipulation of baskets or indices
Behavioral analytics using AI to detect intent and patterns of repeated misconduct
Surveillance teams often focus on end-of-period trading behavior to detect attempts to distort settlement prices, fund valuations, or performance fees.
Preventative Measures and Internal Controls
Market participants, particularly broker-dealers and asset managers, are expected to implement internal controls that reduce the risk of manipulation. These may include:
Pre-trade approval processes for end-of-day trades in low-liquidity instruments
Trade surveillance alerts for volume and price anomalies
Code of conduct training to promote ethical trading behavior
Compliance review of trader activity, especially at reporting cutoffs or net asset value calculation points
Escalation protocols for potentially abusive trading detected by automated systems
These controls are especially important in proprietary trading environments or performance-based incentive structures where risk of abuse is higher.
Strategic Importance in Market Integrity
Marking the close undermines market confidence, distorts price discovery, and disadvantages uninformed investors. In today’s algorithm-driven, high-frequency trading environment, maintaining accurate and fair closing prices is more critical than ever.
Effective prevention of this abuse supports:
Investor protection
Credible index performance
Fair asset valuation
Overall market integrity
Financial institutions, regulators, and trading venues must remain vigilant and adaptive in their efforts to detect and prevent this subtle but damaging practice.
