Which term means simultaneous buying and selling of the same securities for the account of one and the same beneficial owner to give out false or misleading signals?

Which term means simultaneous buying and selling of the same securities for the account of one and the same beneficial owner to give out false or misleading signals?

• A. In-house crossing
• B. Wash trades
• C. Market making
• D. Arbitrage

Answer: (B)

Wash trades test your understanding of market manipulation. They involve buying and selling the same securities at around the same time for the account of the same beneficial owner, so there’s virtually no net change in ownership. The goal is to create artificial activity and give a false or misleading signal about liquidity, demand, or price pressure. Because there’s no real risk transfer or meaningful price discovery, this looks like legitimate trading of no economic substance, which is why it’s treated as manipulation in many markets. For context, the other terms describe legitimate or non-manipulative activities: in-house crossing is internal matching of orders within a firm to reduce costs and market impact; market making is providing liquidity by quoting both bid and offer prices; arbitrage is profiting from price differences between markets. These do not inherently involve creating false signals about activity.

Wash trades test your understanding of market manipulation. They involve buying and selling the same securities at around the same time for the account of the same beneficial owner, so there’s virtually no net change in ownership. The goal is to create artificial activity and give a false or misleading signal about liquidity, demand, or price pressure. Because there’s no real risk transfer or meaningful price discovery, this looks like legitimate trading of no economic substance, which is why it’s treated as manipulation in many markets.

For context, the other terms describe legitimate or non-manipulative activities: in-house crossing is internal matching of orders within a firm to reduce costs and market impact; market making is providing liquidity by quoting both bid and offer prices; arbitrage is profiting from price differences between markets. These do not inherently involve creating false signals about activity.