Match each prohibited market practice under SEC and FINRA rules with the regulatory scenario or definition that accurately describes the violation.
- Front RunningEntering a proprietary order ahead of a pending, non-public customer block order to take advantage of the anticipated market impact.
- Painting the TapeExecuting manipulative transactions among agreeing parties to generate artificial volume on the consolidated tape, misleading other investors.
- CappingSubmitting sell orders in an underlying equity to artificially suppress its market price below an exercise price prior to option expiration.
- InterpositioningInserting a third-party broker-dealer between a customer and the market center without securing a better price for the customer.
Answer
Front Running matches entering proprietary orders ahead of pending non-public customer block orders; Painting the Tape matches executing collusive trades to report artificial volume on the consolidated tape; Capping matches submitting sell orders in an underlying equity to keep its market price below a strike price; Interpositioning matches inserting an unnecessary third-party broker-dealer between a customer and the best execution market center.
Each practice aligns directly with SEC and FINRA rules: Front Running involves taking personal/firm advantage of non-public block order information; Painting the Tape generates deceptive reported ticker volume; Capping suppresses stock prices to protect short option positions; Interpositioning adds an unnecessary intermediary that increases customer execution costs.
Step-by-Step Solution
Key Concept
Prohibited Market Manipulation and Fraudulent Practices