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Difficulty: EasyProhibited Market Manipulation and Fraudulent Practices

A trader enters a series of non-bona fide buy orders for a security at prices above the current best bid with the intention of canceling them prior to execution, solely to create the false appearance of strong buying interest and inflate the stock price. Which of the following prohibited market practices has the trader engaged in?

  1. SpoofingAnswer
  2. B
    Wash trading
  3. C
    Executing regulatory enforcement without SRO oversight
  4. D
    Trading as a principal dealer rather than an agent broker

Answer

Spoofing is the prohibited market practice of entering orders without the intent to execute them to create a misleading impression of market activity.
Spoofing involves entering non-bona fide orders into the order book with the intent to cancel them prior to execution, creating false signals of supply or demand to manipulate market prices.

Step-by-Step Solution

1
Analyze the trading action in the scenario
The trader places non-bona fide orders intending to cancel them before execution to fake buying interest.
Evaluating intent and execution status distinguishes spoofing from legitimate order submission or other fraudulent practices.
2
Compare against securities industry prohibited activity rules
Entering fake orders designed to trigger market interest and canceling them before execution meets the regulatory definition of spoofing.
Spoofing specifically targets order book depth manipulation without requiring trade execution.

Key Concept

Prohibited Market Manipulation - Spoofing
Estimated Time:45s
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Topics

Prohibited Market Manipulation and Fraudulent Practices