Examkin

Question

Difficulty: EasyProhibited Market Manipulation and Fraudulent Practices

An individual trader enters several large buy orders for a thinly traded equity security with no intention of letting them execute. As soon as other market participants raise their bid prices in response to the apparent high demand, the trader cancels all the buy orders and executes a sell order at the newly inflated price. Which prohibited market manipulation tactic is this trader practicing?

  1. A
    Wash trading
  2. B
    Backing away
  3. SpoofingAnswer
  4. D
    Front-running

Answer

Spoofing
Spoofing occurs when a trader enters non-bona fide quotes or orders with the deliberate intent to cancel them before execution, thereby creating false supply or demand signals in the market to manipulate security prices.

Step-by-Step Solution

1
Identify the trading activity described in the scenario
The trader places fake (non-bona fide) orders to alter market perception and cancels them before execution.
Analyzing order intent distinguishes non-bona fide liquidity manipulation from legitimate trading.
2
Match the observed activity to regulatory definitions of market manipulation
Entering orders with the intent to cancel them before execution to manipulate prices is defined as spoofing.
Federal securities laws and FINRA rules explicitly ban spoofing as a deceptive trading practice.

Key Concept

Spoofing
Estimated Time:45s
Rate this question

Topics

Prohibited Market Manipulation and Fraudulent Practices