SIE practice questionhardSpoofing
Placing a large order to buy or sell with the intent to cancel it before execution to mislead other market participants about supply and demand is known as:
- APrearranged trading
- BParking
- CScalping
- DLayering / spoofing✓ Correct answer
Explanation
Why D — Layering / spoofing
Spoofing (also called layering) involves placing orders with the intent to cancel them before execution to create a false impression of supply or demand. For example, placing a large sell order to push the price down, then quickly buying at the lower price and canceling the sell order. The Dodd-Frank Act explicitly prohibits spoofing and provides for criminal penalties. Scalping (B) is buying ahead of a recommendation. Parking (C) is hiding ownership of securities.
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