Interpositioning

DEFINITION of 'Interpositioning'

The unlawful practice of adding an extra broker/dealer as a principal on a trade, even if no service is provided. Typically, interpositioning is done as part of a mutual benefit strategy, sending commissions to the broker/dealer in exchange for referrals or other cash profit. This type of behavior occurs at the upper levels of trade between specialists and broker/dealers, hedge funds or other institutional accounts.


BREAKING DOWN 'Interpositioning'

Interpositioning violates the Investment Act of 1940, which states that a money manager cannot do anything that intentionally defrauds or deceives a client. A wide-ranging case of interpositioning was found to have occurred among various specialists of the New York Stock Exchange in the 1999-2003 period; the SEC estimated that more than $150 million in customer harm was caused in the form of higher commissions and spreads.


RELATED TERMS
  1. Upstairs Market

    The trading of securities, such as stocks, that occurs within ...
  2. Stuffing

    The act of selling undesirable securities from the broker-dealer's ...
  3. Securities Exchange Act Of 1934

    The Securities Exchange Act of 1934 was created to provide governance ...
  4. Broker's Call

    The interest rate charged by banks on loans made to broker-dealers, ...
  5. Call Loan Rate

    The short term interest rate charged by banks on loans extended ...
  6. Member Firm

    A broker-dealer in which at least one of the principal officers ...
Related Articles
  1. Term

    What are the Different Types of Financial Advisors?

    There are two primary types of financial advisors: investment advisors and investment brokers, who work for broker-dealers.
  2. Professionals

    Working For An Independent Broker-Dealer Vs. A Big Bank

    Here is an overview of what broker-dealers and big banks have to offer to employees and the different opportunities available.
  3. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  4. Investing Basics

    The Top 25 Broker-Dealer Firms in 2015

    The country's largest broker-dealer firms by annual revenue are clearly doing lots of things right, but they're also facing a massively shifting market.
  5. Options & Futures

    Should You Offer Alternative Investments?

    Find out what problems arise for financial representatives when they start to diversify their client offerings.
  6. Your Practice

    Grow Your Referrals from Pros with These Tips

    Getting referrals from other professionals can be one of the best ways to grow your business. Here are five ways to do it.
  7. Professionals

    Should You Add A Securities License To Your Qualifications?

    Clients love planners who sell securities, but a securities license takes a lot of work. Learn if the stress and study are worth it.
  8. Your Practice

    How to Bond with Influencers to Grow Referrals

    Here are the top ways advisors can connect with influential people to gain quality referrals.
  9. Professionals

    How To Get Referrals

    Getting clients to cross your doorstep is one of the most challenging tasks in any business. Here are some tips.
  10. Financial Advisors

    Top Referral Tips for Financial Advisors

    A referral from a friend, colleague or industry expert can go a long way in getting more prospective clients to give you a call. Be proactive about it.
RELATED FAQS
  1. When an agent of a broker-dealer begins employment with another broker-dealer ... ...

    The correct answer is D). When an agent moves from one broker-dealer's employ to another, all parties are responsible for ... Read Answer >>
  2. ABC Broker-dealer has no office in state and transacts fewer than five trades during ...

    The correct answer is b. Under these circumstances, the broker-dealer is not required to register with the state and the ... Read Answer >>
  3. Do financial advisors need to be approved by FINRA?

    Learn about whether a financial advisor may be required to be approved by FINRA, and what exams a financial advisor needs ... Read Answer >>
  4. Under the Uniform Securities Act, registration with the Administrator as an investment ...

    The correct answer is c. I is incorrect, since broker-dealers or their agents who don’t receive a fee for making investment ... Read Answer >>
  5. Under the Uniform Securities Act, the Administration is empowered to perform which ...

    The correct answer is a. The Administrator does have the power to subpoena records and obtain an injunction. Also, a sales ... Read Answer >>
  6. Under the Uniform Securities Act, the Administrator of California may examine the ...

    The correct answer is a. The Administrator has jurisdiction over investment advisers, broker-dealers and sales representatives ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center