What Is a Fictitious Trade?

A fictitious trade is a trade that is booked with an execution date far in the futureꦡ and is adjusted to include the correct settlement and trade date when the transaction is completed.

How a Fictitious Trade Works

A fictitious trade is used in the processing of a securities transaction as a form of placeholder and is found when open dates or rates ar💯e being used.

It also refers to a securities order used to affect the price of a security, but which does not result in shares being competitively bid for and no real change in ownership. Wash sales and matched orders are examples of 🌸fictitious trades. A fictitious trade is designed to give the impression that the market is moving in a certain direction, when in fact it is being manipulated by a broker.

Example of a Fictitious Trade

For example, two companies enter into a series of ongoing transactions whose values are based on an interest rate set each week. Because the interest rate 🐓can change from week to week, an open execution date is used for the transaction until the interest rate is announced.

Two transactions are recorded. The first is a cash transaction with a 澳洲幸运5官方开奖结果体彩网:settlement date (the same as the trade date); the second transaction has the same trade date but with a settlement date several weeks later. Each week, the second transaction is updated to include the correct interest r🐈ate and settlement date.

Improper Use of Fictitious Trading

UBS trader Kweku Adoboli was convicted of two counts of fraud in 2012 after his fraudulent trades led to losses of $2.3 billion when he was working in the London office. The losses were incurred primarily on exchange-traded index future positions and were the largest unauthorized trading losses♚ in British history.

His underlying positions were disguised by employing late bookings of real trades, booking fictitious trades to internal accounts💮, and the use of fictitious deferred settlement trades, according to the British Financial Services Authority (FSA).

The FSA fined UBS AG (UBS) £29.7 million, the third-largest fine the regulator had imposed in its history, for systems and controls failings that allowed an employee to cause substantial losses as a result of unauthorized trading.

The Bottom Line

There are plenty of illegal schemes and methods in the financial world. Utilizing incorrect information or misreporting information to create fictitious trades is just one of them. It's best to understand the rules set out by regulatory authorities to ensure you don't accidentally make mistakes that are unlawful while trading.