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Zorluk: ZorProhibited Market Manipulation and Fraudulent Practices

A compliance officer at a member broker-dealer is conducting a review of trade execution practices and trading account activities. Match each prohibited market practice with the scenario that accurately describes the violation.

  • InterpositioningRouting a customer's order through an unnecessary third-party broker-dealer, depriving the customer of best execution.
  • FreeridingPurchasing a security and selling it prior to settlement without depositing full payment for the initial trade.
  • Marking the CloseSubmitting orders near the final market bell specifically to influence the published settlement price of a security.
  • Painting the TapeExecuting coordinated trades among accounts to generate a false public appearance of heavy market liquidity and interest.

Cevap

Interpositioning matches routing customer orders through an unnecessary third-party broker-dealer; Freeriding matches purchasing securities and selling them prior to settlement without depositing payment; Marking the Close matches submitting orders near the final market bell to influence settlement price; Painting the Tape matches executing coordinated trades to generate a false public appearance of liquidity.
Each listed practice represents a distinct statutory or regulatory violation under FINRA and SEC rules. Interpositioning violates best execution duties by adding redundant intermediaries. Freeriding violates Regulation T payment requirements. Marking the close artificially manipulates closing prices. Painting the tape deceives the public regarding genuine market liquidity through collusive trade reporting.

Adım Adım Çözüm

1
Analyze trade execution requirements under FINRA Rule 5310 (Best Execution).
Identify that inserting a third-party intermediary that degrades pricing or adds transaction fees constitutes interpositioning.
Broker-dealers are obligated to use reasonable diligence to ascertain the best market for the subject security.
2
Evaluate Federal Reserve Regulation T settlement rules.
Determine that buying securities and selling them prior to paying for the purchase is freeriding, which results in a 90-day account freeze.
Payment for cash account purchases must be received prior to liquidating the same security.
3
Examine order timing and market manipulation schemes.
Match late-day orders designed to alter published closing quotes with marking the close, and collusive wash/matched trades aimed at faking volume with painting the tape.
Both practices intentionally distort market pricing and trade transparency to deceive investors.

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Prohibited Market Manipulation and Trade Execution Practices
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Prohibited Market Manipulation and Fraudulent Practices