CMFAS RES 2B Derivatives-Specific Conduct Rules & OTC Market Infrastructure question: practice to the description

CMFAS RES 2BDerivatives-Specific Conduct Rules & OTC Market Infrastructure

Match the practice to the description. Which pairing is CORRECT?

A Bucketing: accepting a buy and a sell order at the same price for the same contract month from one customer
B Wash trade: taking the opposite side of a customer's order without exposing it to the market
C Pre-arranged trade: dealers agreeing a price between themselves before the trade is put through the market
D Hunting for stops: withholding a customer's stop order from the market for the dealer's benefit

Show the answer and explanation

Answer: C. Pre-arranged trade: dealers agreeing a price between themselves before the trade is put through the market

Pre-arranged trading is buying or selling derivatives between traders, dealers or brokers at an agreed or predetermined price. The bucketing and wash trade descriptions are swapped: accepting a buy and a sell order from one customer at the same price for the same contract month is a wash trade, while taking the opposite side of a customer's order without exposing it to the market is bucketing. The 'hunting for stops' pairing actually describes withholding of orders, which SFR(LCB) reg 47(1) prohibits; stop hunting means pushing the price to trigger other traders' stop-loss orders.

Common mistake

Examiners swap definitions between adjacent offences; read each pairing slowly.

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Original study material mapped to the public CMFAS RES 2B syllabus. Unofficial, not endorsed by MAS or IBF. Verify figures and rules against current guidance before relying on them.