Trading Ahead

AAA

DEFINITION of 'Trading Ahead'

When a specialist trades securities for his or her own firm's account when there are unexecuted customer orders to buy or sell such securities, which could have been executed at the same price. Trading ahead is specifically prohibited by NYSE rules, since it places the customers at a disadvantage when trading. As well, by taking undue advantage of his or her privileged position, the specialist is damaging the integrity of the market.

INVESTOPEDIA EXPLAINS 'Trading Ahead'

Trading ahead was initially prohibited by NYSE Rule 92. Subsequently, in order to reduce regulatory duplication and streamline compliance, the NYSE and AMEX replaced Rule 92 with FINRA Rule 5320 with effect from Sept. 12, 2011.

FINRA Rule 5320 prohibits a member firm that accepts a customer order for a security, but does not execute it, from trading the security for the firm's proprietary account at a price that would have satisfied the customer order. However, the firm can redeem the situation by immediately thereafter executing the customer order at a price that is at least the same, if not better, than the price it obtained for its own account. Otherwise it would be a violation of Rule 5320.

There are certain exceptions to Rule 5320, including exceptions for large orders and institutional orders, a "no-knowledge" exception and an odd lot and bona fide error transaction exception.

RELATED TERMS
  1. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  2. Trade

    A basic economic concept that involves multiple parties participating ...
  3. Affirmative Obligation

    An obligation of NYSE specialists to enter the market on a particular ...
  4. Interpositioning

    The unlawful practice of adding an extra broker/dealer as a principal ...
  5. Negative Obligation

    An obligation of NYSE specialists to remain on the sidelines ...
  6. New York Stock Exchange - NYSE

    A stock exchange based in New York City, which is considered ...
Related Articles
  1. Options & Futures

    The NYSE And Nasdaq: How They Work

    Learn some of the important differences in the way these exchanges operate and the securities that trade on them.
  2. Entrepreneurship

    Government Regulations: Do They Help Businesses?

    These rules are in place to protect consumers and help businesses thrive at the same time.
  3. Professionals

    The Financial Regulation Overhaul: Good Thing Or Bad Deal?

    No one has read the overhaul bill, not even the politicians who passed it. But there are some things you can be sure of without even picking it up.
  4. Investing Basics

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  5. Options & Futures

    Principal-Protected Investments: Risks, Fees And Regulations

    Discover if these instruments hit the right note for you.
  6. Retirement

    Electronic Trading Tutorial

    Learn about the systems that run the market. Topics include market makers, specialists, SuperDOT, ECNs, SOES, Level I, II, and III Access, and more.
  7. Personal Finance

    How Minimum Wage Impacts Unemployment

    We explain how the minimum wage affects unemployment, public assistance, and the economy overall.
  8. Professionals

    Human Resource Planning

    Just as companies must plan ahead to ensure a steady supply of raw materials, machinery and office space, they must also plan ahead to maintain a steady supply of quality employees. Human resource ...
  9. Professionals

    Value Proposition

    A value proposition is a company’s promise to its customers of a unique and relevant benefit. The value proposition is often the heart of a company’s advertising campaigns.
  10. Bonds & Fixed Income

    How Diaspora Bonds Work

    Developing and emerging nations with sizable populations living overseas are using diaspora bonds to raise financing from emigrants.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center