Standard II (B) - Market Manipulation

Transaction-based manipulation could occur when a CFA member/candidate’s activities could artificially impact the price/volume of an asset to draw public’s attention. For example, an institutional investor with multiple accounts could trade in a stock to increase the trading volume significantly. Another transaction-based manipulation could be where the manipulator takes a dominant, controlling position in an asset so that he could exploit a derivative product.

Both information-based and transaction-based manipulations are a violation of Standard II (B).

Examples:

The following statements are a violation of Standard II (B), Market Manipulation

1. Overstating the earnings projection to help increase stock price.
2. Securing a controlling interest in an equity security in order to influence the price of a related derivative instrument.
3. Spreading false rumour about a firm to encourage trading by others
4. Disseminating misleading information about the development of new products and technologies.
5. Buying and selling a large number of shares from a friend on exchange floor at a price 10% above last trade.

The following statements are not a violation of Standard II (B).

1. Implementing a trading strategy to exploit differences in market power and information.
2. Selling a security and immediately purchasing a similar security in order to minimize income tax liability.
3. Engaging in order splitting to limit the effect on the price of a thinly traded security.
4. Exploiting differences in market inefficiencies.