A trading desk associated person repeatedly enters high-priced buy orders for an illiquid equity security to create a false impression of market demand, intending to cancel these orders before execution once their smaller sell orders on an derivative platform are filled. When questioned during an internal compliance review, the trader claims that FINRA, as the governing self-regulatory organization (SRO), possesses independent federal criminal prosecution authority over this activity. Which of the following statements correctly identifies the prohibited trading practice and accurately describes FINRA's enforcement authority?
- The activity is spoofing, and FINRA lacks criminal prosecution authority, as criminal matters must be referred to federal law enforcement agencies such as the Department of Justice.Cevap
- BThe activity is wash trading, and FINRA holds direct statutory power to file federal criminal indictments against registered representatives for market fraud.
- CThe activity is spoofing, and FINRA maintains exclusive authority to prosecute federal criminal violations involving member firm personnel without government referral.
- DThe activity is an unauthorized principal broker-dealer markup violation, and FINRA operates as a federal government agency with full criminal jurisdiction.
Cevap
The prohibited activity is spoofing, and FINRA, as a self-regulatory organization (SRO), does not have independent authority to bring criminal prosecutions, which must be handled by government authorities like the Department of Justice.
Entering quotes without the intent to execute them to manipulate price perceptions is spoofing. As a self-regulatory organization, FINRA regulates member firms and associated persons through administrative and civil sanctions (such as fines, censures, or bars), but lacks authority to file criminal charges or prosecute criminal cases directly.
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Market Spoofing and Limits of SRO Enforcement Authority
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