Lesson 5 of 5 · All lessons in this module
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 5 of 5 · 14 min
Standard II(B) cases: warning signs and surveillance controls
Six order patterns signal possible manipulation and five firm controls look for them; the signs are indicators, not proof, so intent to mislead and the know-or-should-know test still decide.
In short
- Six indicators: orders entered for an unusually short time; orders above market price; orders that leave beneficial ownership unchanged; orders meant to move the bid or offer and cancelled before execution; orders on both sides of a trade on different platforms; and coordinated action by two or more traders in a market with few participants.
- An indicator is a signal, not a verdict: legitimate activity may look abusive, especially in illiquid or volatile markets, so the member's intent decides.
- Transaction-based manipulation requires that the member knows or should know her actions could distort the price.
- Firm controls: procedures against placing and cancelling orders to deceive; real-time monitoring or systematic surveillance across platforms; an automated order management system with pretrade controls; controls on trading algorithms; and trade exception reporting.
- Members and candidates must comply with their firm's policies and procedures designed to prevent manipulative trading.
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