Trading Ahead

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.



comments powered by Disqus
Hot Definitions
  1. Identity Fraud Reimbursement Program

    A financial product that offers reimbursment for the costs associated with having been a victim of identity theft. These costs may include getting affidavits notarized for police and financial institutions, postage for sending certified mail to police and financial institutions, lost earnings resulting from time spent recovering one's identity, and legal fees.
  2. Cash and Carry Transaction

    A type of transaction in the futures market in which the cash or spot price of a commodity is below the futures contract price. Cash and carry transactions are considered arbitrage transactions.
  3. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  4. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  5. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  6. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
Trading Center