Trading ahead refers to the practice where a broker or specialist executes trades for their own account before fulfilling existing buy or sell orders from clients. This allows the broker to secure a more favorable price for themselves, which can be detrimental to their clients. Such actions are considered unethical and violate the fiduciary duty brokers owe to their clients.
This term is primarily relevant in the context of securities trading and financial regulations. Trading ahead is illegal under both civil and criminal law in the United States. It falls under the broader category of fraud, as it breaches the trust that clients place in their brokers. Legal practitioners may encounter this term in cases involving securities fraud, where brokers are prosecuted for violating their duties.
Here are a couple of examples of abatement:
Example 1: A broker receives a large buy order from a client but decides to purchase shares for their own account first, driving up the price. Once the broker executes their trade, they then fulfill the client's order at the higher price.
Example 2: A specialist on the trading floor sees a significant sell order and sells shares from their own account before executing the client's order, thereby profiting from the price drop. (hypothetical example)
The practice of trading ahead is addressed under various federal securities laws, including:
| Term | Definition | Key Differences |
|---|---|---|
| Front Running | Executing orders on a security for one's own account while taking advantage of advance knowledge of pending orders. | Similar to trading ahead but specifically involves knowledge of client orders. |
| Insider Trading | Buying or selling securities based on non-public, material information. | Involves confidential information rather than client order timing. |
If you suspect that a broker has engaged in trading ahead, it is important to document the transactions and seek legal advice. Users can explore US Legal Forms for templates that may assist in filing complaints or pursuing legal action. If the situation is complex, consider consulting a legal professional for personalized guidance.
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It is when a broker executes trades for their own account before fulfilling client orders, securing a better price for themselves.