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What is Daisy Chaining?

Definition of Daisy Chaining

Daisy Chaining is the act of illegally manipulating the value of a stock by a group of investors creating the impression that a stock is the subject of much greater investor interest than is actually the case.The group will achieve this by conducting multiple virtually simultaneous buy and sell deals between themselves, so boosting reported trading volumes to a degree that attracts other investors who are not in on the scam. The goal is to attract interest in the stock form a wider pool of investors, in order to push up the price of the stock, whereupon those in the scamming group can either sell their shares for much greater profits. The practice can also be used by key people in a firm itself in order, for example, to protect the company from a takeover bid (ramping up the share price may cause a potentialacquirer firm to back away from a bid, as the price will be higher than it wishes to pay), or alternatively may be used in reverse by a company seeking to acquire another firm, with part of the acquisition price being met by shares in the acquiring company. It may also be used by a firm to artificially boost the value of a firm in order to make it a better proposition to banks from which it may be seeking to borrow money. However, daisy chaining is much more difficult to achieve with stocks with large volumes, due to each trade having very little influence over relative value, so stocks with low liquidity are usually targeted for this illegal practice.
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