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Zorluk: OrtaProhibited Market Manipulation and Fraudulent Practices

A compliance director at a registered broker-dealer is auditing equity trading desk operations and flags two specific trading practices:

I. A market maker displays a firm quote of $25.50 bid for 500 shares but refuses to execute an incoming customer order to sell 200 shares at that price.
II. An executing trader unnecessarily routes a customer order through a secondary broker-dealer, adding an extra layer of transaction fees before filling the trade at the prevailing market price.

Which of the following statements regarding these prohibited trading practices are correct?

  1. Refusing to honor a displayed firm quote up to the quoted size constitutes 'backing away,' which violates self-regulatory organization (SRO) trading rules.Cevap
  2. Routing customer orders through an unnecessary third-party broker-dealer constitutes 'interpositioning,' which violates the broker-dealer's obligation to provide best execution.Cevap
  3. C
    Refusing to execute a displayed bid constitutes 'spoofing' because it represents entering non-bona fide orders into the inter-dealer market.
  4. D
    Inserting a third-party dealer is permissible as long as that intermediate firm acts in a dealer capacity and charges a markup rather than an agent commission.

Cevap

The correct statements are that refusing to honor a displayed firm quote constitutes backing away, and inserting an unnecessary intermediate broker-dealer constitutes interpositioning in violation of best execution requirements.
The statement regarding backing away is correct because market makers are obligated under SRO rules to execute customer orders at their published quotes up to the quoted size. The statement regarding interpositioning is correct because introducing an unnecessary third-party broker-dealer between a customer and the best market violates FINRA Rule 5310 on Best Execution.

Adım Adım Çözüm

1
Analyze Practice I regarding the market maker refusing to execute a displayed bid.
Identified as 'backing away' because market makers are legally required to honor their displayed firm quotes up to their stated size under FINRA rules.
Displaying a quote binds the market maker to execute trades at that price up to the quoted amount; failing to do so undermines market integrity.
2
Analyze Practice II regarding the unnecessary insertion of a second broker-dealer.
Identified as 'interpositioning', which is explicitly prohibited under FINRA Rule 5310.
Broker-dealers have a duty of best execution. Introducing an unnecessary middleman adds costs and prevents the customer from receiving the best available market price.
3
Evaluate the incorrect options against regulatory definitions.
Disqualified the claim that Practice I is spoofing (spoofing requires entering quotes with non-execution intent to manipulate prices) and the claim that interpositioning is allowed under principal/dealer compensation structures.
Spoofing relies on intent to cancel quotes prior to execution, and interpositioning is strictly barred regardless of broker/dealer capacity.

Anahtar Kavram

Prohibited Execution Practices (Backing Away and Interpositioning)
Tahmini Süre:1m 30s
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Konular

Prohibited Market Manipulation and Fraudulent Practices