Indirect bucketing refers to a practice in trading where a broker, with the help of a trader, executes trades that are opposite to those of their own customer. This occurs while giving the impression that they are trading against the accommodating trader. Essentially, it involves a broker manipulating the market to benefit from their client's trades without the client's knowledge.
This term is primarily used in the context of financial and securities law. Indirect bucketing can be relevant in cases involving market manipulation, fraud, and violations of fiduciary duties. It is important for brokers and traders to understand this term as it can lead to serious legal consequences, including penalties from regulatory bodies like the Commodity Futures Trading Commission (CFTC).
Here are a couple of examples of abatement:
(Hypothetical example) A broker receives a buy order from a client for 100 shares of a stock. Instead of executing this order directly, the broker collaborates with a trader to sell those shares to another party while making it appear as though the broker is fulfilling the client's order. This action can mislead the client and harm their financial interests.
| Term | Definition | Difference |
|---|---|---|
| Direct Bucketing | Trading directly opposite a client's order without manipulation. | More straightforward and transparent compared to indirect bucketing. |
| Market Manipulation | Actions taken to artificially influence the price of a security. | Indirect bucketing can be a form of market manipulation, but not all manipulation involves bucketing. |
If you suspect that indirect bucketing has occurred, consider the following steps:
| Attribute | Details |
|---|---|
| Typical Fees | Varies by brokerage; may include commissions and fees for trades. |
| Jurisdiction | Federal and state securities laws. |
| Possible Penalties | Fines, suspension, or revocation of trading licenses. |
Direct bucketing involves straightforward trades opposite a client's order, while indirect bucketing includes deceptive practices to mislead clients.
