Identify Market Manipulation - Securities Industry Essentials SIE
- Which manipulative practice is: "I buy and sell to myself to show activity"?
- Wash trading. This self-trading creates illusory volume, prohibited to prevent false signals of market interest under anti-manipulation regulations.
- What is "insider trading" in one sentence for SIE purposes?
- Trading on material nonpublic information in breach of duty. It provides an unfair advantage and breaches confidentiality, prohibited under insider trading laws to maintain a level playing field in securities markets.
- Which manipulative practice is: "Two parties prearrange trades to fake demand"?
- Matched orders. Prearranged trades fabricate demand or supply, violating rules against deceptive practices to ensure genuine market dynamics.
- Which prohibited act is: "I place large orders to move price, then cancel"?
- Spoofing. Fake orders mislead about supply or demand, prohibited under anti-spoofing laws to maintain transparent and efficient markets.
- What is "wash trading" as a market manipulation practice?
- Buying and selling the same security to create false volume. This practice artificially inflates trading volume without changing beneficial ownership, violating prohibitions against creating a false appearance of active trading.
- What is a "bear raid" in market manipulation terminology?
- Coordinated selling/rumors to drive a price down artificially. This coordinated effort depresses stock prices through misinformation and selling pressure, prohibited as it undermines market efficiency and fairness.
- What is the SEC rule that broadly prohibits fraud and manipulation in securities transactions?
- SEC Rule 10b-5 (anti-fraud and anti-manipulation rule). This rule, under the Securities Exchange Act of 1934, makes it unlawful to employ any device, scheme, or artifice to defraud in connection with securities.
- What is "churning" in a customer account, and why is it prohibited?
- Excessive trading to generate commissions; violates suitability. It disregards the client's objectives by prioritizing broker commissions, breaching fiduciary duties and FINRA suitability requirements.
- What is "layering" as a form of manipulative trading?
- Multiple deceptive orders at levels to move price, then cancel. This advanced spoofing technique builds illusory order books to manipulate prices, prohibited to prevent deceptive practices in electronic trading.
- Which practice involves publishing misleading research to move a stock price?
- Disseminating false or misleading information (fraudulent touting). Fraudulent touting misleads investors by promoting securities with biased or false information to manipulate prices, violating disclosure requirements.
- What is "spoofing" as a prohibited manipulative order practice?
- Placing orders with intent to cancel to mislead supply/demand. It creates a false impression of market depth, inducing others to trade unfavorably, banned under the Dodd-Frank Act to protect market fairness.
- What does "material" mean in the phrase "material nonpublic information"?
- A reasonable investor would consider it important to the decision. This standard, from case law like TSC Industries, ensures information that could significantly alter investment choices is protected under insider trading rules.
- Which manipulative practice is: "I trade at 3:59 p.m. to affect the close"?
- Marking the close. Late-day trading skews closing prices, banned as it affects valuations and misleads investors in violation of fair trading principles.
- What is "banging the close" (or ramping) as a manipulation concept?
- Aggressive late trades intended to push the closing price. It artificially influences end-of-day prices for valuation purposes, violating rules against manipulative trading near market close.
- What is "front running" by a broker-dealer or associated person?
- Trading ahead of a customer order to benefit from its impact. This unethical practice exploits client information for personal gain, prohibited by FINRA and SEC to ensure fair order execution and market integrity.
- What is "pump-and-dump" manipulation most commonly associated with?
- Promoting false hype to raise price, then selling to profit. This scheme artificially inflates a stock's price through misinformation, allowing perpetrators to sell at a profit, violating anti-fraud provisions.
- What is "spreading false rumors" about an issuer to affect price called?
- Market manipulation through false or misleading statements. It distorts market perceptions and induces trades based on falsehoods, contravening SEC anti-fraud rules like Rule 10b-5.
- Which prohibited act is: "I buy before a client order I know will move price"?
- Front running. Trading ahead exploits order flow knowledge, breaching fiduciary duties and fairness rules enforced by FINRA and SEC.
- What is a "matched order" in the context of market manipulation?
- Prearranged buy and sell orders to create a false market. Such orders simulate market activity or price movement without real economic purpose, prohibited under anti-manipulation rules to maintain fair markets.
- What does "nonpublic" mean in the phrase "material nonpublic information"?
- Not broadly disseminated to the investing public. Information remains nonpublic until properly released through channels like press releases or filings, a key element in defining illegal insider trading.
- What is "painting the tape" as a market manipulation technique?
- Placing trades to create misleading price or activity reports. It generates artificial tape activity to suggest interest or momentum, forbidden under SEC rules to prevent deception in market reporting.
- What is "marking the close" as a manipulative trading practice?
- Trading near the close to influence the closing price. This tactic distorts the security's perceived value at close, which is prohibited as it misleads investors and affects benchmarks like mutual fund NAVs.
- Which manipulation is: "I hype a thinly traded stock, then sell into the rise"?
- Pump-and-dump. Hyping induces buying pressure for profit-taking, a classic fraud scheme outlawed to protect investors from artificial price inflation.