Examkin

Question

Difficulty: Very hardProhibited Market Manipulation and Fraudulent Practices

Match each prohibited market practice or fraudulent activity under SEC and FINRA rules with its corresponding regulatory definition.

  • ChurningExcessive trading activity in a customer's account conducted by a registered representative primarily to generate additional commission revenue.
  • Free-RidingPurchasing securities in a cash account and subsequently selling them prior to paying for the initial purchase by the settlement date.
  • Marking the CloseExecuting trades at or near the end of the trading day to artificially inflate or deflate a security's published closing price.
  • SpoofingEntering non-bona fide orders with the intent to cancel them prior to execution to create a false impression of market depth or liquidity.

Answer

Churning matches excessive trading driven by commission motives; Free-Riding matches selling securities in a cash account before paying for the purchase; Marking the Close matches executing trades near market end to manipulate closing price; Spoofing matches entering non-bona fide orders intended to be canceled before execution.
Each prohibited activity is accurately matched to its precise regulatory definition under FINRA and SEC anti-fraud enforcement standards.

Step-by-Step Solution

1
Analyze Churning
Pairs with the description of excessive trading in a client account to generate representative commissions.
FINRA rules prohibit registered representatives from trading excessively relative to client goals to profit from fees.
2
Analyze Free-Riding
Pairs with purchasing securities and selling them without depositing full payment by settlement.
Federal Reserve Regulation T requires full payment for cash account purchases before using sale proceeds.
3
Analyze Marking the Close
Pairs with executing transactions right before market closing to artificially alter the closing valuation.
This distorts reported closing prices, affecting derivatives settlement, portfolio valuations, and margin requirements.
4
Analyze Spoofing
Pairs with submitting phantom orders intended for cancellation prior to execution.
Spoofing creates illusory supply or demand in order books to manipulate market movement.

Key Concept

Prohibited Market Manipulation and Fraudulent Practices
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Prohibited Market Manipulation and Fraudulent Practices