Stock Parking

Do you know what stock parking is? It is a practice where a group of people lends their accounts to a person for purchasing and holding the shares. Market manipulators use this tactic to cloak their manipulative works. You will be called "figureheads" if you lend your account to market manipulators.

It is common for banks and companies as these hold custody of their client's assets. But, market manipulators usually abuse this practice to circumvent regulatory requirements or commit illegal acts. Manipulators compensate the figureheads and give them money to control accounts like stock trading and give instructions for voting corporate actions. Let's dig into the article to know about stock parking in detail.

What is Stock Parking?

Stock parking is an illegal practice where people sell their shares to other people by letting them know that the actual owner of the share will purchase them back after a short time. Its target is concealing a stock's real ownership & maintaining the appearance of regulatory compliance.

It occurs when someone buys a share, but it is held by the 3rd party temporarily before being placed in the account of the final client. Brokers can obviate regulatory disclosures of specific positions & transactions because stock parking is not legal.

Stock Parking Explained:

As we have told before, it is an illegal measure where brokers sell shares to a party, and later the party will sell it to the original broker with a profit to the receiving broker. Hence, the target is to decrease the position for disclosure deadlines. Parking stocks are mainly done by brokerages for keeping holdings clean under Securities and Exchange Commission (SEC) guidelines during disclosure periods. Otherwise, they do so to appear as if they fulfilled all the obligations by the settlement date for a specific trade.

A stock broker can park stocks without the knowledge of the employers. Hence, they can shift their shares to the brokerage's internal regulations to conform instead of avoiding an SEC violation. It can sometimes happen that two stockbrokers collude for their profits without knowing about each other's companies with this arrangement. To avoid the disclosure of long-term holdings is one of the intentions of brokers also. In this case, the reason may be that the whole holdings can not withstand federal scrutiny when all long-term holdings are retained by them. Otherwise, the reason is that the brokerage firms are holding penalties for aged stocks.

Common Illegal Acts:

We have given here some common illegal acts which are related to stock parking.

Market Rigging:

Market manipulators usually buy stocks & sell them with figurehead accounts, just like the "ping pong" game. They also give instructions to the figureheads with different brokers when or what stocks they have to buy and sell. After that, they dump the stock at an expensive rate.

Vote Planting:

The market manipulators can arrange for the figureheads to vote in a shareholder meeting so that they can secure approval for corporate actions like rights problems with high subscription ratio and price discount.

Circumventing Regulatory Requirements:

They conceal their original shareholding with the help of this practice to evade specific regulatory requirements. For instance, they may need to make a general offer to purchase shares that are left in a company by holding shares of 30% or more.

Cornering Of Placing Shares In GEM Listing Activities:

Several placement-only GEM listings viewed placing agents for allocating a small share to many retail investors to fulfil the minimum number of shareholders. This move is called as cornering of shares. As a result, shareholding is concentrated highly in the arms of market manipulators.

They can use the figurehead accounts to manipulate share rates upon listing. As a result, they experience a price surge of 10 times or more for luring retail investors into taking up these stocks.

Trading practice via figurehead accounts undermines the market's transparency. It can cover up the company's "true" shareholding distribution to prevent investors from getting a complete picture for making informed decisions. But those in the dark are capable of making erroneous investment decisions. Recently, a few small-cap stocks were available to have several shareholders. But they were highly concentrated among some shareholders.

Parking vs. Kiting:

The term "Parking" mainly refers to a form of share kiting. Hence, brokerage firms intend to cover undeclared short positions, the stock of which wasn't given by the settlement date. Instead of performing a buy-in transaction, firms are colluding with one another. In this case, these delay the settlement procedure and, later, inflate several shares for trade in the secondary market.

It also represents the market's collusion and artificial manipulation. In this case, you should know that when it comes to talk about the SEC regulations, the punishment severity to collude the park shares basically relies upon the infraction severity, the shares traded numbers, taxable income's unregistered amount, and the conspiracy scale. There are a few tiny violations that incur more than a small fine. In 1989, bigger cases were prosecuted more severely where Paul Bilzerian, a corporate raider, was convicted on nine counts of tax fraud connected with this scheme. Therefore, he was prisoned for four years and fined $1.5 million.

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