Compliance officers at a registered broker-dealer are conducting a routine surveillance review of market activities. Which of the following statements regarding prohibited market manipulation practices and regulatory oversight are correct?
- Wash trading involves entering offsetting buy and sell orders for a security without any change in beneficial ownership to artificially inflate trading volume.Answer
- Spoofing involves submitting non-bona fide orders that are intended to be canceled before execution in order to artificially manipulate security prices.Answer
- CWash trading is defined as submitting quotes with the intention of canceling them prior to execution to manipulate order book pressure.
- DSelf-Regulatory Organizations such as FINRA possess independent criminal prosecution authority to imprison individuals who commit securities fraud.
Answer
The correct statements are that wash trading involves buy and sell orders without any change in beneficial ownership to inflate volume, and spoofing involves submitting non-bona fide orders intended to be canceled before execution.
Wash trading requires executing matching transactions where beneficial ownership does not change, while spoofing consists of placing fake quotes intended for cancellation before execution to distort market prices. Both are illegal market manipulation practices prohibited under securities laws.
Step-by-Step Solution
Key Concept
Prohibited Market Manipulation Tactics and Regulatory Boundaries
Estimated Time:1m 0s