Prohibited Activities Flashcards
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Terms in this set
- Insider Trading Trading (or tipping others to trade) on material, nonpublic information in breach of a duty; both the tipper and the tippee are liable, and penalties reach treble civil damages plus criminal fines and prison.
- Market Manipulation Conduct that creates a false appearance of market activity or price: pump-and-dump promotions, wash trades (trading with yourself), matched orders, spoofing/layering with fake orders, and marking the close.
- Front Running Trading for the firm's or rep's own benefit ahead of a known customer order (typically a large block) that will move the price — exploiting knowledge of pending order flow.
- Churning Excessive trading in a customer's account, measured against the customer's objectives and resources, done to generate commissions rather than to benefit the customer — the control + excessive-activity violation.
- Unauthorized Trading Executing a trade in a customer's account without the customer's permission and without written discretionary authority — including 'one free trade' a rep expects the customer to ratify later.
- Freeriding Buying a security in a cash account and selling it before paying for the purchase — riding free on the proceeds. The penalty: the account is frozen for 90 days, requiring cash up front for every buy.
- Guarantees & Sharing in Accounts Two flat prohibitions: a rep may never guarantee a customer against loss or promise a result, and may not share in a customer account's profits or losses except with prior written authorization from both the firm and the customer, and in proportion to the rep's own contribution (proportionality waived for immediate family).