A compliance analyst at a registered broker-dealer is conducting trade surveillance to identify unlawful trading schemes across firm accounts. Which of the following activities represent prohibited market manipulation or regulatory violations?
- Entering non-bona fide buy or sell orders with the intent to cancel them before execution to artificially manipulate market price and order book depth.Answer
- Executing offsetting buy and sell transactions in a security within accounts under common ownership where no change in beneficial ownership occurs.Answer
- CExecuting a customer order in an agency capacity and charging a fair, fully disclosed commission.
- DInitiating independent criminal prosecution and imposing prison sentences directly through SRO disciplinary proceedings.
Answer
The prohibited market practices are placing non-bona fide orders intended for cancellation (spoofing) and executing transactions without a change in beneficial ownership (wash trading).
Spoofing (submitting non-bona fide orders to manipulate price/depth) and wash trading (simultaneous offsetting orders without beneficial ownership change) violate federal securities laws by creating deceptive market signals.
Step-by-Step Solution
Key Concept
Prohibited Market Manipulation and Fraudulent Practices