Business PracticesQuestion 65 of 100
Two traders repeatedly buy and sell the same thinly traded security between themselves at rising prices to attract outside buyers. This conduct is:
a.Legitimate market making
b.Permitted because both parties consented
c.Market manipulation through matched orders creating misleading activity, which is prohibited
d.Permitted if the trades are reported to the tape
Explanation
Wash sales and matched orders create the false appearance of trading volume and price movement and are prohibited manipulative practices. Consent between the participants is irrelevant because the deception targets the investing public. Reporting the trades does not legitimize them, and genuine market making involves bona fide two-sided quotations rather than prearranged trades with no change in beneficial ownership.
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