A registered representative receives an institutional customer's order to purchase 100,000 shares of a thinly traded stock. Prior to entering the customer's order into the execution system, the representative places a personal buy order for 500 shares of the same stock in their own account to profit from the anticipated market price increase. Which of the following prohibited market practices has the registered representative committed?
- Front running, which occurs when a representative executes trades for their personal account with advance knowledge of a pending customer block order.Cevap
- BWash trading, which occurs when an individual executes transactions involving no actual change in beneficial ownership to create artificial market activity.
- CPrincipal market making, which allows a firm dealer to buy shares into inventory prior to fulfilling customer orders as long as a mark-up is disclosed.
- DA permissible SRO exemption, because FINRA rules allow registered representatives to trade ahead of customer orders if the personal trade is under 1,000 shares.
Cevap
Front running, which occurs when a representative executes trades for their personal account with advance knowledge of a pending customer block order.
Front running is the illegal practice of entering a trade for a personal or firm account based on advance, nonpublic knowledge of an imminent large order (block order) that will likely move the market price. The representative used the client's pending order to gain an unfair advantage.
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Anahtar Kavram
Front Running and Prohibited Trading Practices