Definition of wash trading

Wash trading occurs when a trader buys and sells the same securities simultaneously. Wash trades benefit brokers who earn commissions from the trades. Wash trades can also be used to create the false impression that there is investor interest in the security. Wash trades conducted around the endpoint of a tax year are also sometimes used to evade taxes. Wash trades are not in and of themselves illegal but they are almost always used for illegal purposes.[1]

 

wash trading in the news

In December 2012 more details emerged of UBS's intermal culture at the time that it was manipulating interbank lending rates. Regulators alleged that internal audits at UBS had failed to spot that traders were engaging in wash trades – buying and selling the same securities simply to earn commissions for the brokers who were helping them to manipulate interest rates. According to the UK Financial Services Authority, four traders worked through interdealer brokers to try to influence Japanese yen Libor submissions at other banks. The FSA alleges the UBS traders asked the brokers to pass on requests for specific rates to traders at other banks. they also asked the brokers to place false bids and offers and to manipulate the rates shown on their screens to skew market perceptions of the rates and indirectly influence other banks's submissions to the Libor rate-setting process. The brokers were paid for their help in the manipulation through wash trades. At one point the bank was paying £15,000 a quarter to the brokers for a period of 18 months, the FSA said.

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