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Zorluk: ZorProhibited Market Manipulation and Fraudulent Practices

A compliance supervisor at a registered broker-dealer is evaluating several trading activities conducted across firm accounts. Which of the following actions constitute prohibited market manipulation or fraudulent practices under securities regulations? (Select all that apply.)

  1. Executing simultaneous buy and sell transactions in a security with no change in beneficial ownership to artificially inflate reported volume.Cevap
  2. Entering sell orders during the final minutes of the trading session specifically intended to depress the official closing price of an equity security.Cevap
  3. C
    Canceling an unexecuted limit order after market prices move unfavorably, where the original order was entered with genuine bona fide intent to execute.
  4. D
    Filing criminal prosecution charges directly through a FINRA arbitration panel to impose a federal prison sentence on a manipulative market participant.

Cevap

The prohibited practices are executing simultaneous buy and sell trades without a change in beneficial ownership (wash trading) and entering orders specifically to alter a security's closing price (marking the close).
Both wash trading (executing transactions without altering beneficial ownership) and marking the close (entering orders at the trading day's end to manipulate closing valuations) intentionally distort market signals and price integrity, making them prohibited fraudulent practices.

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1
Identify manipulative practices that create artificial market activity or prices.
Trading with no change in beneficial ownership (wash trading) and driving prices down at market close (marking the close) directly violate Section 9(a) and Rule 10b-5 of the Securities Exchange Act of 1934.
These practices generate misleading signals regarding volume and price valuation to deceive other investors.
2
Distinguish between illegal market manipulation tactics and legitimate order management.
Canceling a bona fide limit order due to market movements is fully permissible.
Spoofing requires non-bona fide intent at the time of entry. Genuine orders canceled after market shifts do not violate regulatory standards.
3
Evaluate the regulatory scope and legal powers of self-regulatory organizations (SROs).
FINRA cannot bring criminal charges or incarcerate individuals.
SRO authority is restricted to administrative and civil remedies (fines, suspensions, industry bars), whereas criminal prosecutions must proceed through federal or state judicial systems.

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Prohibited Market Manipulation and Fraudulent Practices
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Prohibited Market Manipulation and Fraudulent Practices