How Manipulation Can Erode Trust in our Markets and Institutions

As I watched recent events, I kept coming back to a simple truth: market manipulation is no different from bribery or corruption in terms of the corrosive impact on the confidence in companies and institutions. Our markets—and to an extent, our institutions—are based on trust. We trust that the financial markets discover a fair value of a company and that those valuations change honestly based on company performance and investor interest. That trust underscores all our approaches and decisions, and without it, stakeholders would be left with little reliable data to inform their choices.  

As highlighted recently by a few incredibly prominent examples of publicly traded companies being “short squeezed,” any efforts to manipulate market behavior can undermine public trust and the fairness of our markets. Since the purpose of manipulation is to drive decisions that otherwise would not be made in the same way or made at all, it undermines confidence of those who participate in the market, just as bribery and corruption also does. This damages the inherent quality and depth of a market, which should bring together informed, but different, viewpoints about the future. For every seller, there must be a buyer.

To be clear, there’s a difference between varied investment strategies—which are essential and beneficial to capital markets—and manipulation, which is illegal. Investors are always looking to be compensated for use of their capital and the risks they take. 

Markets operate on the premise that there’s reliable, quality information stakeholders can use to make decisions. Multiple factors contribute to the quality of this information—preparers, regulators, standard setters, auditors and boards of directors all have roles to play in getting stakeholders access to high-quality data to make informed decisions. Knowing that these safeguards exist in addition to companies’ internal controls and oversight helps to build trust in the available information within our markets and inherently, the system.   

As auditors, our role places us in a trusted position in the larger ecosystem due to financial reporting’s importance in markets and economies across the globe. The ongoing exchange between institutions and investors is undoubtedly underpinned by quality financial information. In many ways, auditors help protect the public’s trust by providing a report on whether a company’s financial information is fairly and accurately presented in all material respects—and it’s a responsibility my peers and I take seriously. 

However, manipulation undermines this entire process by injecting false or misleading information into the market. Our markets are too precious, too valuable and too essential for our country and stability to be subject to those who would manipulate them to serve their own profit-seeking interests. While it may be difficult to identify and control a few bad actors, I’m confident in the efforts of those within our financial reporting ecosystem—preparers, auditors, corporate directors, standard setters and regulators—to continue working diligently to uphold the public’s trust and the fairness of our markets—now and in the future.