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Answer: Stock 2 only.
## Explanation Anderson violated the Standards by trading **Stock 2 only** (Option B). ### Key Points: - **Stock 1 trading**: Buying and selling to incentivize market activity and improve liquidity is generally permissible market-making activity - **Stock 2 trading**: Exploiting price differences between exchanges constitutes **arbitrage trading**, which is generally acceptable market activity - **Standard II(B): Market Manipulation** prohibits transactions that distort prices or trading volumes with intent to mislead market participants - **Neither activity** described appears to violate market manipulation standards: - Improving liquidity (Stock 1) serves legitimate market function - Arbitrage (Stock 2) helps correct pricing inefficiencies Based on the information provided, neither trading activity clearly violates CFA Standards. However, if forced to choose, Stock 2 arbitrage could potentially raise concerns if done in a manipulative manner.
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Julia Anderson, CFA, a trader, notices a decline in liquidity of Stock 1. She starts buying and selling Stock 1 to incentivize market activity in the stock. Anderson also notices that Stock 2 trades at different prices in two different exchanges, and starts buying and selling Stock 2 to exploit the price difference. Anderson has violated the Standard(s) by trading:
A
Stock 1 only.
B
Stock 2 only.
C
both Stock 1 and Stock 2.
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