# Market Manipulation as a Security Problem

## TL;DR

This paper examines how technical exploits in order matching systems enable market manipulation, proposing security models and mitigation strategies to address mechanical arbitrage threats in equity exchanges.

## Contribution

It provides the first comprehensive overview of mechanical arbitrage threats, models fair markets with security assumptions, and discusses potential technical mitigation measures.

## Key findings

- Mechanical arbitrage exploits are a significant threat to market fairness.
- Technical solutions can effectively mitigate manipulation techniques.
- A security framework for fair markets is proposed.

## Abstract

Order matching systems form the backbone of modern equity exchanges, used by millions of investors daily. Thus, their operation is strictly controlled through numerous regulatory directives to ensure that markets are fair and transparent. Despite these efforts, market manipulation remains an open problem. In this work, we focus on a class of market manipulation techniques that exploit technical details and glitches in the operation of the exchanges (i.e., mechanical arbitrage). Such techniques are used by predatory traders with deep knowledge of the exchange's structure to gain an advantage over the other market participants. We argue that technical solutions to the problem of mechanical arbitrage have the potential to significantly thwart these practices. Our work provides the first overview of the threat landscape, models fair markets and their security assumptions, and discusses various mitigation measures.