Welcome to Fraud, Market Manipulation, and Insider Trading - the unit that covers the most serious violations in securities law and the protections designed to keep markets fair.
Exam Weight: Part of 25% (15 questions total for Chapter 7 - Ethical Practices and Obligations)
What You'll Learn
In this unit, you'll cover:
- Antifraud Provisions: The universal USA rule that applies to all securities transactions with no exemptions
- Manipulative Devices: Wash trades, matched orders, and painting the tape
- Front-Running: Trading ahead of customer orders for personal gain
- Spoofing and Layering: Placing fake orders to manipulate prices
- Insider Trading: Trading on material nonpublic information in breach of a duty of trust or confidence
- Selling Away: Conducting securities business outside your firm's supervision
- Outside Securities Accounts: Disclosure rules for accounts an agent holds at firms other than their employer
- Exploitation of Vulnerable Adults: The NASAA Model Act's mandatory reporting and disbursement delay provisions
- Other Prohibited Activities: Misrepresentations, fictitious accounts, and guarantees against loss
Why This Matters
Fraud and manipulation are the most heavily tested ethical violations on the Series 63. The exam will present scenarios where you must identify the specific violation, know which rule applies, and understand what protections exist for investors. This unit builds from the foundational antifraud provisions (which apply to everything) through specific manipulation tactics, insider trading rules, and the NASAA Model Act protecting vulnerable adults.
Let's start with the antifraud provisions that form the foundation for everything else in this unit.