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CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets

A trader repeatedly enters large buy orders that are canceled before execution, intending to move the bid price, and places orders on both sides of the same trade using different platforms. Which conclusion is most appropriate under Standard II(B)?

The conduct matches listed indicators of manipulation: orders meant to move prices and canceled before execution, and orders on both sides via different platforms. With intent to mislead, it likely violates Standard II(B). Manipulation includes deceptive transactions, so absence of false information or execution is no defense.

  1. AThe trader's conduct matches several listed indicators of manipulation and likely violates the Standard if intent to mislead existsCorrect
  2. BThe trader's conduct is acceptable because no false information was disseminated
  3. CThe trader's conduct is acceptable because the orders were canceled and never executed

Explanation

Orders intended to change bid or offer prices and canceled before execution, and orders on both sides using different platforms, are listed indicators. Manipulation also covers transactions that distort price-setting, not only false information. Cancellation does not remove the misleading effect.

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