How to Define Illegal Price Manipulation

The term "illegal price manipulation" is difficult to define. Current US law does not explicitly define it. The finance and econom? ics literature uses the term "manipulation" in an imprecise manner. This paper proposes that a trading strategy not be classified as "illegal price manipulation" unless the violator's intent is to pursue a scheme that undermines eco? nomic efficiency both by making prices less accurate as signals for efficient resource allo? cation and by making markets less liquid for risk transfer. Since price effects are market wide, we treat the terms "price manipulation" and "market manipulation" as synonyms. Our definition applies equally to financial and com? modities markets.