Examkin

Question

Difficulty: EasyProhibited Market Manipulation and Fraudulent Practices

A registered representative receives an institutional customer order to purchase a large block of stock. Before entering the customer's block trade into the system, the representative buys shares of the same security for their personal account to profit from the anticipated market price increase. Which of the following prohibited practices has the representative committed?

  1. Front runningAnswer
  2. B
    Wash trading
  3. C
    Principal dealer market making
  4. D
    SRO criminal prosecution

Answer

The prohibited practice committed is front running.
Front running occurs when a registered representative or broker-dealer executes a transaction for their own account based on advance knowledge of a pending customer block order that is expected to affect the market price of the security.

Step-by-Step Solution

1
Identify the trading activity described in the scenario
The representative learned of an upcoming institutional block order and placed a personal trade prior to executing the customer order.
Trading ahead of a known, non-public customer block order takes advantage of non-public order information to gain a personal financial edge.
2
Match the conduct to the regulatory definition
Entering an order for a personal or firm account while holding an unexecuted customer block order is defined as front running under FINRA rules.
FINRA Rule 5270 explicitly prohibits trading in a security while in possession of material, non-public information concerning an imminent block transaction in that security.

Key Concept

Front Running
Estimated Time:45s
Rate this question

Topics

Prohibited Market Manipulation and Fraudulent Practices