SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 19: Answer and Explanation

Question: 19

Which of the following types of market manipulation is also referred to as "churning"?

• A. Market rumors
• B. Pump-and-dump
• C. Front running
• D. Excessive trading

Correct Answer: D

Explanation:

D: Choice D involves placing multiple orders to increase the compensation of the representation placing the orders rather than promoting the interest of the customer. Choice A involves false information about a company being spread in order to artificially increase or decrease the market value of its securities. Choice B happens when one or more investors holding a firm's security or securities start favorable, false market rumors in order to positively influence the market value of those securities, in order to sell them soon afterward at a profit somewhat unrelated to the actual economic health of the company. Choice C involves taking advantage of nonpublic knowledge that a large block transaction is about to be completed, by placing an order for a discretionary account or for the firm's account.