A registered representative receives a large institutional customer order to buy 500,000 shares of an equity security. Before entering the customer's block order into the order execution system, the representative purchases 5,000 shares of the same stock for their personal account to profit from the anticipated price increase. Which of the following best describes this prohibited practice?
- Front-running, which involves trading ahead of a material, non-public customer block order.Answer
- BWash trading, which occurs when an investor simultaneously buys and sells a security with no change in beneficial ownership.
- CPermissible agency trading, provided the representative's firm acts as a dealer executing from inventory.
- DA regulatory violation investigated and criminally prosecuted directly by FINRA without federal statutory authority.
Answer
Front-running, which involves trading ahead of a material, non-public customer block order.
Front-running is defined as taking a proprietary or personal position in a security while possessing material, non-public knowledge of an impending block order in that same security, aiming to profit from the price movement driven by the customer order.
Step-by-Step Solution
Key Concept
Front-Running and Prohibited Market Practices