Match each prohibited market practice on the left with its corresponding regulatory violation definition on the right, as established under FINRA and SEC rules governing securities trading.
- InterpositioningInserting a third-party broker-dealer between a customer order and the primary market without providing any economic benefit to the customer.
- Free-RidingPurchasing a security in a cash account and subsequently selling that same security prior to fully paying for the initial purchase.
- PeggingEntering buy orders for a security with the explicit purpose of keeping its price stabilized or fixed at an artificial level.
- Painting the TapeExecuting collusive or artificial trades to generate reported market activity and create the false appearance of high trading volume.
Answer
Interpositioning matches with inserting an unnecessary third-party broker-dealer; Free-Riding matches with selling a security before paying for its initial purchase in a cash account; Pegging matches with entering orders to stabilize or fix a security's price; Painting the Tape matches with executing artificial trades to create a false impression of volume.
Each prohibited practice corresponds strictly to its FINRA and SEC definition: Interpositioning illegally adds an unnecessary intermediary firm between client and market; Free-Riding illegally utilizes unsettled sale proceeds to satisfy a purchase obligation in a cash account; Pegging artificially fixes market price levels; and Painting the Tape creates fake reported trading activity.
Step-by-Step Solution
Key Concept
Prohibited Market Manipulation and Fraudulent Practices