Practice Quiz

FINRA Series 63 (NASAA)

Category - Series 63

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Which of the following are examples of the prohibited practice of manipulation in the securities markets?
I. Broker-Dealer Joker is unhappy with its investment in the stock of a speculative firm and engages another broker-dealer to purchase a large number of shares from it, with the unofficial agreement to buy back those shares, offer more shares which the second broker-dealer will purchase, and so on.
II. Broker-Dealer Joker has a large short position in the stock of a certain corporation. Joker offers a bonus to its agents who effect sale transactions in the stock.
III. A client calls Broker-Dealer Joker with a request to purchase 20 bonds issued by Massachusetts Institute of Technology (MIT.) The bonds are currently selling for their par value of $1,000. Knowing this, Joker offers to sells the client the bonds for $120 per $100 of par, or $1,200 per $1,000 bond.
  1. I, II, and III
  2. I and II only
  3. I and III only
  4. I only
Explanation
Answer: B - Only Selections I and II are examples of manipulation in the securities market. It is considered to be manipulation if one firm engages another firm to make a series of purchases and sales that will make it appear that there is very active trading in the security; it is also considered manipulation if a broker-dealer encourages its agents to solicit sales of a security in which it has a short position since that broker-dealer is hoping that the sales will drive the price of the security down, thereby making the firm’s position profitable. Although the offer to sell a client bonds at a much higher price than their market price is illegal, it is not an example of price manipulation.
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