A registered representative enters a series of non-bona fide sell orders for a thinly traded stock well below the current national best offer, intending to cancel them before execution. The primary objective is to create the false impression of heavy selling pressure, driving down the market price so the firm can execute a proprietary buy order at a lower cost. Which statement correctly identifies this prohibited practice and the regulatory authority over the representative's conduct?
- The activity constitutes spoofing, a prohibited market manipulation tactic regardless of whether the non-bona fide orders were executed, and FINRA has disciplinary authority to sanction the associated person.Cevap
- BThe activity constitutes wash trading because the orders were intended to manipulate market volume without changing beneficial ownership, allowing FINRA to refer the representative for criminal prosecution.
- CThe activity constitutes spoofing, but FINRA lacks jurisdiction to discipline the representative because enforcement power over market manipulation rests exclusively with the Securities and Exchange Commission (SEC).
- DThe activity constitutes a violation of broker-dealer principal capacity rules, because an associated person is legally prohibited from trading proprietary inventory when executing trades on an exchange.
Cevap
The correct answer states that the activity constitutes spoofing, a prohibited market manipulation tactic regardless of whether the non-bona fide orders were executed, and FINRA has disciplinary authority to sanction the associated person.
The correct answer accurately identifies the practice as spoofing and recognizes FINRA's SRO authority. Spoofing involves submitting orders with no intention of execution to create a false appearance of supply or demand. FINRA enforces rules prohibiting manipulative and fraudulent devices and possesses authority to discipline registered representatives.
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Spoofing and SRO Regulatory Jurisdiction