So they start with nothing, ZZZ borrows stock, XXX places a bid...

So they start with nothing, ZZZ borrows stock, XXX places a bid and ZZZ hits it. XXX has to be at the front of the bid queue in order for me to sell to myself... this is a new bid that wasn't there before and if it is at the front of the queue, then it has to be higher than anyone else's. The mechanism as it was described was that I buy and sell to myself, involving no-one else. How does that move the price if my buy has to have a bid price higher than anyone else? Also, to clarify, it isn't the shorted shares that have a net zero P&L... they will be in profit if the share price falls. That is, my ZZZ account is short and it is in profit. Unfortunately, my XXX account is long and it is in loss if the price falls. It is the net position across both accounts that would be zero. I don't understand exactly how my buy in XXX and sell in ZZZ does anything other than give a false impression of liquidity?

There is some substance to the idea that market participants following fixed rules can be gamed though. For example, you often see futures trade above fair value on big ex-dividend days near the close as index funds buy futures to maintain market exposure. You would also be aware of some of the variance swap hedging that helped inflate volatility at various times (ie, investment banks being short variance, they have to delta hedge by trading index futures in the same direction as the intraday move: ie they have to sell when markets are down, inflating the moves). In these cases though, you're talking about billions of notional exposure. It is hard to imagine that anyone is trying to game a few margined retail investors in a smallcap stock.