A broker learns that one of his institutional clients is about to enter a buy order for 10,000 shares of ABC stock. The broker tells one of the principals of the broker-dealer and the broker-dealer immediately enters a proprietary buy order for 10,000 shares of ABC stock ahead of the client's order. This trade is generally prohibited as front running but would be permitted if:

[A] The firm can demonstrate that the trade is unrelated to the customer's block order

[B] The trade was made to fill or facilitate the customer's block order

[C] The trade is executed on a national stock exchange and in compliance with its rules

[D] All of the above.

Question

Business

Ryan Foley

8 September, 09:44

A broker learns that one of his institutional clients is about to enter a buy order for 10,000 shares of ABC stock. The broker tells one of the principals of the broker-dealer and the broker-dealer immediately enters a proprietary buy order for 10,000 shares of ABC stock ahead of the client's order. This trade is generally prohibited as front running but would be permitted if:

[A] The firm can demonstrate that the trade is unrelated to the customer's block order

[B] The trade was made to fill or facilitate the customer's block order

[C] The trade is executed on a national stock exchange and in compliance with its rules

[D] All of the above.

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Answers (1)

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Kingston Cline · Answer 1

[D] All of the above.

Explanation:

Front running is the process by which a party to a share purchase has initial knowledge of the future market value of shares that are yet to be issued and makes a proprietary buy order for stock ahead of the client's order.

Normally this can be as a result of insider information which is prohibited, but the options above all allow this practice.

-If the firm can demonstrate that the trade is unrelated to the customer's block order

-If the trade was made to fill or facilitate the customer's block order

-If the trade is executed on a national stock exchange and in compliance with its rules