Interpositioning

AAA

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.


INVESTOPEDIA EXPLAINS '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. Bucket Shop

    1. A fraudulent brokerage firm that uses aggressive telephone ...
  2. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  3. Pump And Dump

    A scheme that attempts to boost the price of a stock through ...
  4. Front Running

    The unethical practice of a broker trading an equity based on ...
  5. Churning

    Excessive trading by a broker in a client's account largely to ...
  6. Trading Ahead

    When a specialist trades securities for his or her own firm's ...
RELATED FAQS
  1. How does beta measure a stock's market risk?

    Beta is a statistical measure of the volatility of a stock versus the overall market. It's generally used as both a measure ... Read Full Answer >>
  2. What is the difference between a hostile takeover and a friendly takeover?

    A hostile takeover occurs when one corporation, the acquiring corporation, attempts to take over another corporation, the ... Read Full Answer >>
  3. What are examples of businesses that exhibit social responsibility?

    In the 21st century, companies that exhibit corporate social responsibility are winning high marks from consumers and investors ... Read Full Answer >>
  4. How much of the asset management industry has moved from traditional managers to ...

    While the exact numbers are difficult to calculate due to variations in measurement and the overall growth of the asset management ... Read Full Answer >>
  5. Why is social responsibility important to a business?

    Social responsibility is important to a business because it demonstrates to both consumers and the media that the company ... Read Full Answer >>
  6. What's the difference between a collateralized debt obligation (CDO) and a collateralized ...

    A collateralized mortgage obligation, or CMO, is a type of mortgage-backed security (MBS) issued by an lender that handles ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Insider Selling Isn't Always A Bad Sign

    Predated trades at regular intervals can instill confidence, not fear, for investors.
  2. Economics

    Defining Illegal Insider Trading

    The better you understand why insider trading can be criminal, the better you'll understand how the market works.
  3. Investing Basics

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  4. Mutual Funds & ETFs

    10 Most Famous Hedge Fund Managers

    The most famous hedge fund managers have made billions, but their fame might not always result from their financial successes.
  5. Economics

    What is a Moral Hazard?

    The risk that a party to a transaction has not entered into the contract in good faith, or has provided misleading information.
  6. Economics

    Understanding Externality

    An externality is a consequence of an economic activity that is experienced by unrelated third parties.
  7. Investing Basics

    What is a Foreign Institutional Investor?

    A foreign institutional investor (FII) is a person or a group of people operating or registered in a country that’s not their domicile.
  8. Mutual Funds & ETFs

    How To Start a Hedge Fund In the United States

    A general overview of how to start a hedge fund firm in the United States, including complying with state and federal regulations.
  9. Mutual Funds & ETFs

    How To Start A Hedge Fund In The UK

    Starting a new hedge fund in the United Kingdom is more complex than in the United States. We discuss UK laws and regulations for starting a new hedge fund.
  10. Mutual Funds & ETFs

    Want To Work At a Hedge Fund? These Are The Top Entry-Level Jobs

    Lucrative salary, high perks, and best quantitative brains at work - Here are the common entry level positions for those aspiring for a career in hedge fund industry.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center