A compliance officer at a FINRA member firm is auditing market activities and trading practices conducted by several associated persons. The audit reveals the following separate actions:
1. A day trader enters large buy orders well above the current bid with the explicit intent to cancel them immediately after smaller retail traders raise their bids.
2. A market maker refuses to execute a trade at its published firm quote size when presented with an order from another broker-dealer.
3. A registered representative executes a personal buy order for the same equity security immediately prior to entering a client's large institutional buy block order.
4. FINRA enforcement staff initiates criminal prosecution proceedings in federal district court against an unregistered individual accused of price manipulation.
Which of these observed activities or regulatory assertions represent actual violations of FINRA or SEC rules regarding market manipulation, trading conduct, or regulatory authority? (Select ALL that apply.)
- Entering non-bona fide orders with the intention of canceling them prior to execution to artificially influence market prices (spoofing) is a prohibited manipulative practice.Answer
- Failing to honor a published firm quote up to the displayed size when an order is presented (backing away) constitutes a violation of FINRA market conduct rules.Answer
- Trading for a personal or firm account ahead of a pending customer block order in the same security (front running) is an improper market practice.Answer
- DFINRA maintains direct federal statutory authority to independently file criminal charges and prosecute individuals in criminal court for market fraud.