A registered representative receives a market order from a retail customer to buy 2,000 shares of an over-the-counter (OTC) equity security. Rather than executing the trade directly with the market maker displaying the best price, the representative routes the order through a third-party broker-dealer who adds an unnecessary markup before sending it to the market maker, causing the customer to incur extra execution costs. Which prohibited trading practice has been committed?
- Interpositioning, because an unnecessary third party was inserted between the customer and the best available market.Cevap
- BBacking away, because the market maker failed to honor their firm quoted price for the transaction.
- CFront-running, because the representative executed a transaction for a firm account prior to fulfilling a customer order.
- DRegulatory arbitrage, because FINRA lacks SRO jurisdiction to regulate order routing decisions across market venues.
Cevap
Interpositioning, because an unnecessary third party was inserted between the customer and the best available market.
Interpositioning is defined under FINRA rules as inserting a third party between a customer and the market maker providing the best market price. Unless the customer benefits from better execution overall, this practice is strictly prohibited because it artificially inflates customer transaction costs.
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Anahtar Kavram
Interpositioning and Best Execution
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