Trading Pattern Indicative of Potential Market Manipulation
Question
An analyst for a broker-dealer finds a client has been systematically purchasing securities at a high price but selling the same securities only when the price falls.
Which type of activity is this trading pattern indicative of?
Answers
Explanations
Click on the arrows to vote for the correct answer
A. B. C. D.C
https://sanctionscanner.com/blog/understanding-the-cuckoo-smurfing-technique-in-money-laundering-203
The trading pattern described in the question is indicative of potential insider trading, which is Option D.
Insider trading occurs when a person has access to material nonpublic information and trades on that information or passes it on to others who then trade on it. The client in the question is systematically purchasing securities at a high price, which could indicate that they have knowledge of positive news or information about the company that is not yet publicly available.
By contrast, the client sells the same securities only when the price falls, suggesting that they may be trying to disguise their trades or mitigate their losses from previous trades. This behavior could indicate that the client is potentially transferring value from one party to another, which is Option B, but it is more indicative of insider trading.
Option A, depository accounts, involves accounts where funds are deposited, rather than securities traded, so it is not relevant in this context. Option C, cuckoo smurfing, is a money laundering technique that involves using multiple accounts to transfer money between different jurisdictions, and is not relevant to this scenario either.
Therefore, the correct answer is Option D, the client has potential insider knowledge. It is important for the analyst to further investigate this behavior and determine if there is any evidence of insider trading.
