CMFAS RES5 Securities Dealing & Market Conduct question: enters several large buy orders forming

CMFAS RES5Securities Dealing & Market Conduct

During the pre-open phase, a person enters several large buy orders forming most of the buy queue, together with a small sell order, then deletes all the buy orders just before the opening price is set — leaving only the sell order to fill at a favourable price. This is best characterised as:

A A legitimate order-management strategy since orders can be amended before matching
B Employment of a manipulative and deceptive device under SFA s201
C Permissible covered short selling
D Insider trading under s218

Show the answer and explanation

Answer: B. Employment of a manipulative and deceptive device under SFA s201

Deleting the buy orders shows there was no intention to fulfil them; their real purpose was to move the opening price to fill the sell order at a favourable level — a deceptive device used to influence price and deceive the market, an offence under s201. Misusing the pre-open/pre-close phases in this way is manipulative and deceptive.

Common mistake

Placing orders with no intention to fulfil them, to move the price, is deception — not routine order management.

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