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Question

Difficulty: HardProhibited Market Manipulation and Fraudulent Practices

Prior to the market close on the final trading day of the quarter, an investment manager submits a series of high-priced buy quotes for a thinly traded stock held across client accounts. The manager cancels the quotes before execution, but the elevated bid quotes successfully raise the stock's official closing price, thereby artificially inflating the portfolio's valuation and quarterly performance metrics. Which of the following best describes this prohibited activity?

  1. Marking the closeAnswer
  2. B
    Wash trading
  3. C
    Interpositioning
  4. D
    Free-riding

Answer

Marking the close
The scenario describes marking the close, which is the illegal practice of entering order quotes or executing trades at or near the market close for the purpose of artificially altering the closing price of a security.

Step-by-Step Solution

1
Analyze the trading behavior and timing presented in the scenario.
The investment manager submitted high-priced buy quotes near the end of the trading day to artificially alter the security's closing price.
Timing order entry specifically around market close to affect valuation metrics points directly to closing price manipulation.
2
Identify the regulatory definition corresponding to manipulating closing prices.
Entering orders or quotes at or near the close of trading to affect the closing price of a security is explicitly defined as marking the close.
This is a prohibited practice under securities regulations because it misleads investors and inflates portfolio values.

Key Concept

Marking the Close as a Prohibited Market Practice
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Topics

Prohibited Market Manipulation and Fraudulent Practices