What is Painting the Tape?
In the finance world, painting the tape means to trade securities in a manipulative way in order to influence the reported trading data for those securities.
How Does Painting the Tape Work?
Let's say traders A and B want more people to buy the stock of Company XYZ. They decide to paint the tape by buying big blocks of Company XYZ shares from each other so that the ticker shows a huge jump in trading volume for the stock. The idea is that unsuspecting investors will see the spike in activity, think something is brewing, and buy the stock. This in turn drives up the price of Company XYZ shares, which is what traders A and B want. They sell their shares for a profit.
There are other ways to paint the tape, such as calling in a client's huge buy order in, say, five-share increments, so that it looks like lots of people are crowding to buy the stock.
Why Does Painting the Tape Matter?
It is illegal to buy or sell a security for the explicit purpose of changing the stock price.