Question

A registered representative receives an order from a corporate issuer to buy 500,000 shares of that issuer's stock in the market, 5 minutes prior to market close. The registered representative should:

Answer 1

Answer: C. inform the company that this is a possible market manipulation under the Securities Exchange Act of 1934

Explanation:

The Securities Exchange Act of 1934 is meant to govern the actions of issuers and their affiliates engaging in trade in the open market. One reason for this is to prevent stock price manipulation.

SEC Act Rule 10b-18 might rule this transaction as a manipulative activity because it goes against the section of it that states that securities cannot be traded within 10 minutes of the stock market closing if that stock is an actively traded one. If it is not then the trade should not be executed within 30 minutes of market close.

The client should therefore be informed that by placing an order 5 minutes before close they could run afoul of this Act because buying such huge amounts at such a time could influence the price upwards for when the market reopens.