Examkin

Question

Difficulty: EasyProhibited Market Manipulation and Fraudulent Practices

Under FINRA rules and federal securities laws, which of the following actions constitute illegal market manipulation or prohibited trading practices? (Select ALL that apply.)

  1. Entering matching buy and sell orders for a security where there is no change in beneficial ownership to artificially inflate trading volume.Answer
  2. Submitting non-bona fide quotes with the intent to cancel them prior to execution in order to deceive market participants about true supply and demand.Answer
  3. C
    Executing an order on an agency basis as a broker-dealer and charging a fair market commission after disclosing capacity to the customer.
  4. D
    Filing a criminal indictment against a market manipulator directly through a self-regulatory organization (SRO) compliance officer.

Answer

The prohibited market practices are entering trades with no change in beneficial ownership (wash trading) and submitting non-bona fide orders intended to be cancelled prior to execution (spoofing).
The correct responses identify wash trading and spoofing. Wash trading involves entering buy and sell transactions with no shift in beneficial ownership to fake market volume. Spoofing involves submitting non-bona fide orders with the intention of cancelling them before execution to manipulate prices. Both violate SEC and FINRA anti-manipulation rules.

Step-by-Step Solution

1
Analyze each trading behavior against regulatory definitions of market manipulation.
Wash trading (no change in beneficial ownership) and spoofing (entering non-bona fide orders to cancel) are defined as fraudulent market manipulation tactics.
Both tactics intentionally create a false or misleading appearance of active trading or price movement in a security.
2
Evaluate legitimate business functions and regulatory powers among the remaining options.
Executing orders on an agency basis for a commission is normal broker activity, and SROs lack criminal prosecution authority.
Legitimate broker-dealer operations and SRO jurisdictional boundaries distinguish permissible acts and administrative processes from prohibited market misconduct.

Key Concept

Prohibited Market Manipulation Practices
Estimated Time:45s
Rate this question

Topics

Prohibited Market Manipulation and Fraudulent Practices