Registered representatives must adhere strictly to FINRA rules and federal securities laws prohibiting market manipulation and improper trading practices. Match each prohibited market practice on the left with the compliance scenario that best describes the violation on the right.
- Marking the CloseExecuting trades at or near the end of the trading day to artificially inflate or deflate a security's reported closing price.
- Painting the TapeEngaging in prearranged buy and sell transactions among market participants to create the false illusion of high market activity and liquidity.
- Free-RidingPurchasing shares in a cash account and then selling those same shares prior to making full settlement payment for the initial buy order.
- InterpositioningRouting a customer order through an unnecessary third-party broker-dealer, incurring added fees or reduced execution quality.
Cevap
Marking the Close matches executing trades near market close to affect closing prices; Painting the Tape matches prearranged trades creating false market volume; Free-Riding matches selling purchased stock in a cash account before settling payment; and Interpositioning matches routing customer orders through an unnecessary third party.
Each practice is accurately paired with its regulatory prohibition under federal securities law and FINRA rules: Marking the Close targets artificial end-of-day price adjustments; Painting the Tape creates fake trading activity via collusive prearranged trades; Free-Riding exploits cash account settlement timelines by selling unpaid securities; and Interpositioning breaches best execution duties by placing an unneeded third-party broker into the execution path.
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Classification of Prohibited Market Manipulation and Fraudulent Practices under FINRA and SEC Rules