Securities Trader Representative (Series 57) Practice Exam

ABCD stock currently has an inside market of 30.05 - 30.15. Which statement is TRUE about the conversation between Betty and Bob?

1. This is simply an example of the normal, day-to-day talk among traders

2. This could be interpreted as collusion

3. This exchange is not an example of collusive behavior, since Betty did not explicitly ask Bob to move his quote

4. Any conversation between traders is illegal

The correct answer is: This could be interpreted as collusion

The statement provided suggests that the exchange between Betty and Bob could be interpreted as collusion. In the context of securities trading, collusion refers to an agreement between traders to manipulate the market, which could involve coordinating their actions to influence stock prices or trading volumes. If Betty and Bob's conversation indicates that they are working together to fix prices, create artificial trading volumes, or otherwise distort the market in a way that harms other investors, it fits the definition of collusion. The inside market of ABCD stock being quoted at 30.05 - 30.15 adds further context; if their discussion is aimed at impacting these prices, it raises concerns about potential manipulation. Other options do not reflect the nuances of trading regulations and the importance of maintaining fair market practices. Normal day-to-day trader discussions (which could involve legitimate price discovery or market information sharing) are not necessarily collusion unless there is intent to manipulate. The indication that there was no explicit request to move a quote suggests a misunderstanding of how subtle collusive behavior can be; collusion can sometimes happen without direct instructions. Stating that any conversation between traders is illegal is an overreach since traders frequently communicate without any illicit intent. In summary, B is accurate because it captures the