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What is Prearranged Trading? A Deep Dive into Its Legal Definition
Definition & Meaning
Prearranged trading refers to transactions between brokers that occur based on a prior agreement or understanding. This practice creates the illusion of trading activity, which can mislead other market participants into thinking there is genuine trading interest. Such actions are considered manipulative and are prohibited under the Commodity Exchange Act and regulations set forth by the Commodity Futures Trading Commission (CFTC).
Table of content
Legal Use & context
Prearranged trading is primarily relevant in the fields of securities and commodities trading. It is often scrutinized in regulatory contexts, particularly by the CFTC and the Securities and Exchange Commission (SEC). This term may involve various legal forms and procedures that users can manage themselves, such as reporting suspicious trading activities or filing complaints. Utilizing legal templates from US Legal Forms can assist users in navigating these processes effectively.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: Two brokers agree to buy and sell the same stock to each other at predetermined prices, creating the illusion of increased trading volume. This could mislead other investors about the stock's market interest.
Example 2: A broker arranges a series of trades with another broker that are intended to offset each other, thus giving the appearance of legitimate trading activity without actual market risk. (hypothetical example)
Relevant laws & statutes
The primary legal framework governing prearranged trading includes:
Commodity Exchange Act
CFTC regulations
Various securities acts that prohibit manipulative practices
Comparison with related terms
Term
Definition
Key Differences
Wash Trading
Buying and selling the same security to create misleading volume.
Prearranged trading involves an agreement between parties, while wash trading may not require such an agreement.
Market Manipulation
Any action taken to artificially influence the price or volume of a security.
Prearranged trading is a specific form of market manipulation focused on creating false trading activity.
Common misunderstandings
What to do if this term applies to you
If you suspect involvement in prearranged trading, it's crucial to seek legal advice. You can explore US Legal Forms for templates that may help you report or address the situation. If the matter is complex, consider consulting a legal professional to guide you through the process.
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