A compliance auditor is reviewing trading activity logs at a member broker-dealer to evaluate potential regulatory violations. Which of the following trading practices represent prohibited market manipulation or fraudulent conduct? (Select all that apply.)
- Entering non-bonafide buy orders with the intent to cancel them prior to execution to create a false impression of buying interest in a security.Answer
- Purchasing equity shares for a firm's proprietary account immediately prior to executing a large customer block buy order in the same stock.Answer
- CMatching a buyer and seller in a secondary market transaction as an agent and charging a disclosed commission on the trade.
- DBringing criminal charges and imposing prison sentences on manipulative traders through SRO disciplinary proceedings.
Answer
The prohibited practices are entering non-bonafide orders intended for cancellation before execution (spoofing) and buying shares ahead of a client's block buy order (front-running).
Entering non-bonafide orders designed to be canceled before execution (spoofing) deceives market participants regarding genuine interest. Purchasing securities ahead of a client's institutional block order (front-running) takes unfair advantage of pending client orders. Both activities constitute illegal market manipulation and fraud.
Step-by-Step Solution
Key Concept
Prohibited Market Manipulation and Fraudulent Practices