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Difficulty: EasyProhibited Market Manipulation and Fraudulent Practices

Just prior to the regular market close, a trader places a sequence of small buy orders at inflated prices solely to raise the security's official closing price. Which prohibited market practice does this scenario describe?

  1. Marking the closeAnswer
  2. B
    Wash trading
  3. C
    Acting as a principal dealer
  4. D
    Criminal prosecution by a self-regulatory organization

Answer

Marking the close
Marking the close is a prohibited manipulative practice where orders are placed near the end of the trading day to artificially manipulate the closing price of a security.

Step-by-Step Solution

1
Identify the primary trading intent described in the scenario.
The trader executes orders at the end of the trading day specifically to alter the security's closing valuation.
Artificially affecting a security's official closing price is a prohibited form of market manipulation.
2
Match the observed activity to its established regulatory definition.
Entering orders near the closing bell to inflate or deflate a security's published closing price is defined as 'marking the close.'
Regulators prohibit marking the close because closing prices are used for portfolio valuation, margin calculations, and financial reporting.

Key Concept

Marking the Close
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Prohibited Market Manipulation and Fraudulent Practices