Session 1: Ethical and Professional Standards

Reading 2-II: Standards of Professional Conduct & Guidance: Integrity of Capital Markets

LOS B.: Market Manipulation.

Steve Waters, a CFA Level I candidate, has decided to enter into a long position of Farmco stock. Since Farmco is thinly traded, Waters is concerned the order will overwhelm the liquidity of Farmco and the price will surge. Waters engages in a series of block trades in order to accomplish the purchase. According to Standard II(B), Market Manipulation, Waters has engaged in:

B)

transaction-based manipulation, but not information-based manipulation.

C)

both transaction-based manipulation and information-based manipulation.

Waters is not in violation of Standard II(B), Market Manipulation. Transaction-based manipulation includes, but is not limited to, transactions that artificially distort prices or volume. Information-based manipulation includes, but is not limited to, spreading false rumors about a firm in order to induce others to trade.