An institutional investor simultaneously places buy and sell limit orders for 25,000 shares of a thinly traded equity security at identical prices across two distinct brokerage accounts under common ownership. The trades execute against each other, generating significant transaction volume on the consolidated tape without altering the investor's ultimate economic interest in the security. Which of the following statements correctly classifies this market practice and describes the scope of FINRA's regulatory enforcement authority?
- The activity is wash trading because there is no change in beneficial ownership, and FINRA as a self-regulatory organization (SRO) may impose administrative fines and sanctions but cannot bring criminal charges.Cevap
- BThe activity is spoofing because non-bona fide orders were entered to manipulate market depth, and FINRA has statutory authority to criminally prosecute the trader.
- CThe activity is wash trading because trade execution was matched, and FINRA acts as a federal government agency with primary jurisdiction to file criminal indictment charges.
- DThe activity is legitimate market making conducted in a dealer capacity, and it is permissible provided the broker-dealer executes the trades from inventory with an explicit markup.
Cevap
The activity is wash trading because there is no change in beneficial ownership, and FINRA as a self-regulatory organization (SRO) may impose administrative fines and sanctions but cannot bring criminal charges.
The correct answer accurately identifies the practice as wash trading—since the buy and sell orders were executed between accounts under common control with no net change in beneficial ownership—and correctly delineates FINRA's authority as an SRO capable of levying administrative fines and suspensions, but without criminal prosecution authority.
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Wash Trading Definition and SRO Regulatory Enforcement Boundaries
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