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Zorluk: OrtaProhibited Market Manipulation and Fraudulent Practices

A compliance officer at a FINRA member broker-dealer is conducting a routine audit of electronic trading logs. Which of the following activities represent prohibited market manipulation or fraudulent practices under SEC and SRO rules? (Select all that apply.)

  1. Submitting non-bona fide limit orders with the intended strategy of canceling them prior to execution to artificially distort displayed order book depth and drive price movementCevap
  2. Entering matching buy and sell orders for a security in accounts under common control where no actual change in beneficial ownership occursCevap
  3. C
    Executing customer orders in an agency capacity by matching buyer and seller interest and charging a disclosed commission
  4. D
    Initiating criminal indictment proceedings directly against a fraudulent trader through FINRA's internal regulatory body

Cevap

The prohibited practices are submitting non-bona fide orders to manipulate order book depth before canceling them (spoofing) and executing trades without a change in beneficial ownership to simulate trading volume (wash trading).
Submitting non-bona fide orders to alter perceived liquidity (spoofing) and executing prearranged trades without beneficial ownership transfer (wash trading) are illegal market manipulations that distort true price discovery and trading volume.

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1
Evaluate order submission strategies for deceptive intent.
Identify that entering orders intended solely for cancellation to alter market perception is spoofing.
Securities regulations strictly forbid entering non-bona fide orders designed to manipulate market depth or prices.
2
Evaluate transactions for changes in beneficial ownership.
Identify that offsetting buy and sell orders without ownership change constitute wash trading.
Wash sales generate artificial volume signals, misrepresenting genuine market demand and liquidity.
3
Assess legitimate broker roles and regulatory jurisdiction boundaries.
Confirm agency trade execution is fully legal, and recognize that FINRA lacks criminal prosecution powers.
Brokers lawfully earn commissions on agency trades, while criminal charges fall exclusively under government agency jurisdiction like the Department of Justice.

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Prohibited Market Manipulation and Fraudulent Practices
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Prohibited Market Manipulation and Fraudulent Practices