Match each prohibited market practice under FINRA and SEC rules with the scenario or regulatory definition that accurately describes the violation.
- Marking the CloseEntering trades near the end of the trading day to artificially manipulate the reported closing price of a security.
- Free-RidingPurchasing securities in a cash account and selling them prior to paying for the initial trade.
- ChurningExecuting an excessive number of trades in a customer account primarily to generate broker commissions.
- Painting the TapeEngaging in transactions among colluding parties to report misleading trading volume and inflate perceived market activity.
Answer
Marking the Close matches entering trades near market close to affect closing price; Free-Riding matches buying and selling securities in a cash account before settling payment; Churning matches excessive trading to generate commissions; Painting the Tape matches collusive trading to fabricate market volume.
Each prohibited practice accurately corresponds to its standard regulatory definition: Marking the Close targets closing market price manipulation; Free-Riding is a Regulation T payment violation; Churning is excessive trading for broker fees; and Painting the Tape is artificial volume generation through collusive trades.
Step-by-Step Solution
Key Concept
Prohibited Market Manipulation and Customer Account Violations