A registered rep accepts a $150 holiday gift from a hedge fund client, places her own buy order before executing a 50,000-share customer order, and forgets to update her Form U4 after a felony arrest. Three separate violations, three different rules, and any one of them can end a career.
Manipulation creates a false or misleading appearance of trading activity or price. Section 9(a) of the Exchange Act, Rule 10b-5, and FINRA Rule 5210 prohibit it. Common forms:
- Painting the tape: coordinated trades among accomplices to create the illusion of active interest.
- Matched orders: prearranged buys and sells between cooperating parties to inflate reported volume.
- Marking the open or close: trading at the opening or closing print to set a misleading benchmark price.
- Pump and dump: spreading false positive information to inflate price, then dumping holdings into the bid.
- Spoofing and layering: entering orders with no intent to execute, misleading other participants about supply or demand.
Trading securities while holding material, nonpublic information (MNPI) breaches a duty of trust. The Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA) and Section 10(b) of the Exchange...
Common mistakes
- Filing an OBA notice for a private securities transaction that pays compensation. Compensation flips the requirement to notice plus written approval under Rule 3280.
- Treating the gift cap as per occasion. The $300 is per person per calendar year, aggregated across every gift.
- Believing freeriding triggers a fine or permanent ban. The penalty is a 90-day cash-up-front restriction under Regulation T.
Bottom line
- Gifts cap: $300 per person per calendar year (FINRA Rule 3220); reasonable business entertainment is uncapped if the rep attends
- OBA needs prior written notice (Rule 3270); PST for compensation needs prior written notice AND approval (Rule 3280)
- Political pay-to-play de minimis is $250 per election if you can vote for the candidate (primary and general count separately)
- Form U4 amendments within 30 days of a reportable event; Form U5 filed by the firm within 30 days of termination; a rep files neither directly
Exam shortcut
"Outside" plus "compensation" plus "securities" equals PST under 3280, full approval required. Drop any one term and it slides to OBA or a personal matter. Memorize two dollar numbers: $300 gifts (per person per calendar year) and $250 political contributions (per election, only if you can vote). Violations cost a two-year time-out on muni or advisory business.
The full lesson (about 2,801 words, 19 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C18
- D19
- D20
Browse all free SIE lessons or jump into free SIE practice questions.