“Marking The Close” – A Prohibited Practice

Screen-Shot-2014-11-07-at-00.31.51 "Marking The Close" - A Prohibited Practice

“Marking The Close” is a technique of purchasing a security at the very end of the trading day — often within minutes of the close of trading — at a significantly higher price than the security’s current traded price. The purpose is to raise the security’s closing price, thus making it appear to be of higher value than it actually is. The manipulation of a transaction in order to give a false, misleading or artificial appearance of activity in a stock improperly influences the market price and is illegal. Yet, some traders continue to engage in such practice —and pay the price.

Oil and Gas Investment

A Midwest-registered representative with many years’ experience with investments in North Dakota and Colorado oil and gas companies recently entered into a Letter of Acceptance, Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA) settling charges that he allegedly marked the close in order to preferentially influence a stock price in June 2009. According to the AWC, the respondent had discussions with senior management about the firm’s possible participation in an upcoming shelf offering of shares of a Minnesota-based oil and gas production company. Then, early June 23, 2009, he allegedly gave a trader a sheet of paper containing account numbers and quantities of the company’s shares and informed the trader that he would call him later with trading instructions — probably near the close.

Minutes Before Close

The AWC disclosed that about 19 minutes before the 4 p.m. ET close, the respondent called the trader and told him to place the orders “in like ten minutes at 2:50 [Central time]… or even wait” a few minutes later. He learned that the day’s volume on the stock was 221,000 and then instructed the trader to  ”close the thing over six if you can.” The respondent’s five buy orders totalled 37,000 shares and represented 58 percent of the oil and gas company’s total trading volume during the last 10 minutes of trading. Furthermore, the national best bid and offer moved from $5.98  to $6, approximately eight minutes prior to the close and then to $6.09–$6.10 at the close.

SEC and FINRA Violations

The above-described conduct was found to be in willful violation of Section 10(b) of the Securities Exchange Act of 1934 (regulation of the use of manipulative and deceptive devices),  its Rule 10b-5 (employment of manipulative and deceptive devices), and of FINRA Rule 2020 (use of manipulative, deceptive, or other fraudulent devices) and 2010 (ethical standards). The respondent was fined $25,000 and suspended from association with any FINRA member in all capacities for 40 calendar days.