A proprietary trader submits offsetting buy and sell orders for the same equity security simultaneously through two accounts controlled by the same entity. The transactions result in no change in beneficial ownership but generate an artificial appearance of active trading to induce other investors to trade. Which of the following prohibited practices has the trader committed?
- Wash trading, because the orders involve no change in beneficial ownership and are designed to create misleading market activity.Answer
- BSpoofing, because the trader placed non-bona fide quote requests intended to be canceled before execution.
- CA self-regulatory rule infraction governed exclusively by SRO rules, as the SEC lacks statutory authority over market manipulation.
- DFront-running, because the firm was acting as a principal broker-dealer executing transactions with inventory mark-ups.
Answer
The trader committed wash trading by executing offsetting orders with no change in beneficial ownership to artificially inflate trading volume.
Executing offsetting buy and sell orders that result in no change in beneficial ownership to create a false illusion of trading volume is defined as wash trading under FINRA rules and federal securities laws.
Step-by-Step Solution
Key Concept
Wash Trading and Market Manipulation Prohibitions