How to detect advancing the bid?

As for the screening for potential advancing the bid (or depressing the ask) situations, the trade surveillance system should pop up alerts for limit buy (sell) orders placed above (below) the current best bid (ask) price, taking into consideration that the market participant's behavior is more suspicious as the:

• Higher is the distance between the price of the buy (sell) limit order and the current best bid (ask);
• Higher is the frequency at which the market participant places such type of orders;
• Lower is the security's liquidity.

To avoid having excessive false positives, the trade surveillance system's alerts should be calibrated taking into consideration the following diagram:

Additionally, as in the other types of market manipulation, the compliance officers should try to understand whether the market participant had an intent to influence the market price.

Let's look at the example in which a shareholder of the company XYZ, whose stock is lowly-traded, frequently (e.g., 10 times per quarter) places limit buy orders at prices above the best bid - sometimes 2 or 3 ticks above, having a clear impact on the price performance. This case is obviously highly suspicious, as such shareholder, by placing buy orders at unfavorable prices for relatively small amounts, is simultaneously inflating the value of his large position.