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Answer: Fund D's behavior is permitted by regulators
- **Fund A** engages in **late trading**, which is prohibited because orders placed after the market close should not receive that day’s NAV. - **Fund B** engages in **front running**, which is illegal. - **Fund C** engages in a reciprocal **directed brokerage** arrangement tied to referrals, which is not encouraged by regulators and can create serious conflicts of interest. - **Fund D** uses a trading rule based on price movements relative to a moving average. This is simply an investment strategy and is not, by itself, prohibited. So the true statement is **D**.
Author: Manit Arora
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Q-21.6.3. Consider the following four mutual funds and their respective behaviors:
Each of these behaviors is undesirable (or illegal) EXCEPT which is acceptable; i.e., which of the following statements is TRUE?
A
Fund A's behavior is permitted by the SEC
B
Fund B's behavior is legal
C
Fund C's behavior is encouraged by regulators
D
Fund D's behavior is permitted by regulators
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