Examkin

Question

Difficulty: MediumProhibited Market Manipulation and Fraudulent Practices

Two market participants coordinate to enter matching buy and sell orders for a thinly traded stock at pre-arranged prices and times. Their intent is to generate reported transactions on the public ticker to give the false impression of high trading volume and drive the share price up. Which of the following terms best describes this prohibited market manipulation practice?

  1. Painting the tapeAnswer
  2. B
    Wash trading
  3. C
    Principal dealer market making
  4. D
    SRO criminal prosecution

Answer

Painting the tape is the prohibited practice of executing coordinated transactions to create a false appearance of market activity and artificially inflate trading volume or price.
The correct option is 'Painting the tape'. Painting the tape involves collusive or pre-arranged trading intended to generate ticker tape activity, giving investors the false impression of dynamic trading volume and genuine market demand.

Step-by-Step Solution

1
Analyze the trading scenario characteristics
The scenario describes coordinated, matched buy and sell orders between multiple participants intended to generate public transaction records on the tape.
Identifying the key mechanics (pre-arranged orders, multiple colluding traders, public tape display) distinguishes the specific market manipulation violation.
2
Compare scenario mechanics to prohibited activity definitions
Creating deceptive ticker activity through matched trades to artificially move price or volume is formally defined as 'painting the tape'.
Rule provisions under FINRA and federal securities laws prohibit fraudulent tactics that mislead the investing public regarding security liquidity or price.

Key Concept

Prohibited Market Manipulation - Painting the Tape and Matched Orders
Estimated Time:1m 0s
Rate this question

Topics

Prohibited Market Manipulation and Fraudulent Practices