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Originally Posted by r1ch
I've been wondering about the myriad of small purchases way above the spread too.
I don't know much about stock market rules, so maybe someone here can help. How does the market prevent stock price manipulation by two traders simply passing small amounts of stock back and forth at above market rates?
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Broadly that is done through the FSA conduct of business rules and market abuse rules. The policy can be summed up as "if we think what you did was dodgy we can prosecute you"
For the more legally minded amongst you market abuse is subject to the burden of proof required in civil proceedings. Insider trading requires a criminal burden of proof which is why there are almost no successful prsecutions of insider trading.
On an operational level this kind of activity is tracked through datamining and human surveillance performed by both the LSE and FSA.