A proprietary trader at a broker-dealer submits a series of large buy orders for a thinly traded equity security significantly above the current bid price. The trader has no intention of executing these orders; instead, the goal is to create the false appearance of intense buying interest so other market participants raise their bids. As soon as the market price rises, the trader cancels all the pending buy orders before execution and sells the firm's long inventory at the higher price. Which of the following prohibited practices has the trader committed?
- Spoofing, because the trader entered non-bona fide orders intended to be canceled prior to execution to manipulate market prices.Cevap
- BWash trading, because the trader executed offsetting transactions between accounts under common ownership without a change in beneficial ownership.
- CUnauthorized principal dealing, because market makers are legally prohibited from trading out of firm inventory when customer orders are pending.
- DAn SRO criminal violation, because FINRA holds statutory jurisdiction to criminally prosecute individuals for deceptive quote submissions.
Cevap
Spoofing, because the trader entered non-bona fide orders intended to be canceled prior to execution to manipulate market prices.
The correct answer identifies spoofing. Spoofing is a form of market manipulation where a market participant submits non-bona fide orders (orders they do not intend to execute) to artificially move security prices or create a false impression of market liquidity, canceling the orders before execution to profit on secondary trades.
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Spoofing vs. Other Prohibited Practices