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In the book of Quantitative Finance by Schmidt, on page five it states:

"Some financial markets are organized in exchanges or bourses (e.g., New York Stock Exchange (NYSE)). In other, so-called over-the-counter (OTC) markets, participants operate directly via telecommunication systems. Market data are collected and distributed by markets them- selves and by financial data services such as Bloomberg and Reuters."

If the financial data is distributed by the markets themselves, can't a market change today's data by adding 1$ to each transaction so that the next day, transactions will start at a higher price than what it would normally be?

  • Can you elaborate what you mean by manipulating old data and change future price. – Dheer Oct 6 '18 at 5:10
  • @Dheer See my edit, please. – onurcanbektas Oct 6 '18 at 5:22
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    Why would the market want to manipulate the price higher? They don’t get the money themselves when someone buys a stock, it goes from buyer to seller, so there’s no advantage to the market if the price increases. – Mike Scott Oct 6 '18 at 7:06
  • @MikeScott It was just an illustration how can the market owner manipulate the data. From my perspective, even the fact that they are able to makes data unreliable. – onurcanbektas Oct 6 '18 at 7:14
  • @MikeScott I mean I'm new in finance, but I'm almost sure that there is a way to make profit by manipulation that data in a certain way. – onurcanbektas Oct 6 '18 at 7:15
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If I am short 100 shares of XYZ that closed today at $53 and the exchange decides to arbitrarily raise the price by $1, what do you think my reaction will be? Or perhaps it lowers price by $1. What will the reaction of all share owners be? Investors will not participate in a rigged market.

Getting away from investor emotions and reactions, exchanges like the NYSE and NASDAQ which you mentioned, as well as all other major markets (domestic and international) are regulated so this idea of data manipulation by the exchanges is a non starter.

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The market price is by definition the point at which the number of shares that people are willing to buy is equal to the number of shares that people are willing to sell. Suppose the market price is $30 and NYSE decides it wants to declare it to be $31. The only way they could do that is to simply not list any bids below $31. The remaining bids would be quickly filled, and there would be a bunch of asks sitting unfulfilled. There would occasionally be a new bid at $31, but they would quickly disappear. The short term effect would be a decrease in trading volume (which presumably would eat into NYSE's revenue). As people caught onto the manipulations, fewer and fewer people would be willing to put in a bid, and they will look for alternatives: other exchanges if the stock is dual listed, derivatives, and direct sales. Confidence in the exchange would plummet, and companies would move to other exchanges. Regulators would probably get involved.

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