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Difficulty: HardProhibited Market Manipulation and Fraudulent Practices

During the final minutes of the trading day, a portfolio manager enters a series of large buy orders for a thinly traded equity security specifically designed to push the stock's execution price higher just prior to the market close. The goal of this activity is to artificially elevate the fund's end-of-month net asset value (NAV) calculation. Which prohibited market manipulation practice has been committed, and what regulatory body holds self-regulatory oversight authority over member firm conduct in the secondary markets?

  1. Marking the close, governed by FINRA as a self-regulatory organization under SEC oversight.Answer
  2. B
    Wash trading, governed by FINRA as a self-regulatory organization under SEC oversight.
  3. C
    Marking the close, governed by FINRA as an independent federal law enforcement agency with direct criminal prosecution powers.
  4. D
    Freeriding, governed by the Federal Reserve Board acting as a principal broker-dealer clearing entity.

Answer

The prohibited practice is marking the close, which is overseen and regulated by FINRA operating as a self-regulatory organization under the authority of the SEC.
Entering trades at or near the market close to artificially push up or pull down the closing price of a security constitutes marking the close. Regulatory oversight of member broker-dealer activities in secondary trading is handled by FINRA, which is a self-regulatory organization (SRO) subject to ultimate oversight by the SEC.

Step-by-Step Solution

1
Analyze the trading activity described in the scenario.
Entering orders right before the market close to artificially alter the closing price of a security is defined as 'marking the close.'
It manipulates valuation figures, such as end-of-month net asset values or collateral values.
2
Identify the proper regulatory jurisdiction and authority type.
FINRA is a Self-Regulatory Organization (SRO) that creates and enforces rules for member broker-dealers under the supervisory authority of the SEC.
SROs possess civil disciplinary authority over registered personnel and firms, but are not federal agencies with criminal jurisdiction.

Key Concept

Marking the close is a illegal market manipulation strategy intended to influence the closing price of a security. Regulatory oversight over broker-dealers executing such trades is provided by FINRA (an SRO) under SEC supervision.
Estimated Time:2m 0s
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Prohibited Market Manipulation and Fraudulent Practices