Compliance officers at a registered broker-dealer are auditing order flow across several accounts to identify potential violations of federal securities laws and FINRA conduct rules. Which of the following trading practices represent prohibited market manipulation or fraudulent activity? (Select all that apply)
- Entering non-bona fide orders intended to be canceled prior to execution in order to create a false impression of order book depth and drive price movement.Answer
- Executing matching buy and sell transactions in a security where there is no effective change in beneficial ownership to artificially inflate reported trading volume.Answer
- CSelling equity securities to a customer directly from firm inventory while acting as a principal dealer and applying a fair and reasonable markup.
- DExecuting offsetting buy and sell orders across accounts owned by completely separate legal entities to provide liquidity, which constitutes illegal wash trading.
Answer
The prohibited market practices are entering non-bona fide orders to deceive market depth (spoofing) and executing matching buy and sell transactions with no change in beneficial ownership (wash trading).
The practices involving non-bona fide quotes intended for cancellation before execution (spoofing) and prearranged trades that do not change beneficial ownership (wash trading) are both illegal market manipulations designed to create misleading impressions of volume, liquidity, or price movement.
Step-by-Step Solution
Key Concept
Prohibited Market Manipulation (Spoofing and Wash Trading)
Estimated Time:2m 0s