A registered representative observes a customer repeatedly entering large buy limit orders for a thinly traded equity security at prices higher than the current national best bid, only to cancel those orders seconds later after other market participants raise their bid prices to match. The customer then executes sell orders against the artificially inflated bids. Which of the following statements correctly identifies this manipulative trading practice and its regulatory status?
- The activity constitutes spoofing, an illegal market manipulation scheme designed to create a false appearance of market interest and artificially move prices.Cevap
- BThe activity constitutes wash trading, an illegal practice because the customer is entering simultaneous offsetting buy and sell orders without a change in beneficial ownership.
- CThe activity is permitted if executed by a broker-dealer acting in a dealer capacity for inventory management, but prohibited when acting in an agent capacity.
- DThe activity constitutes spoofing, but self-regulatory organizations like FINRA cannot discipline the account holder directly because SRO jurisdiction is limited strictly to member firms and associated persons.
Cevap
The activity constitutes spoofing, an illegal market manipulation scheme designed to create a false appearance of market interest and artificially move prices.
The correct answer accurately identifies spoofing. Spoofing is an illegal market manipulation tactic where a trader enters non-bona fide orders (orders not intended to be executed) to create a false visual impression of market demand or supply, deceiving other market participants into trading at manipulated price levels.
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Spoofing and Market Manipulation Rules
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