Trading Ahead

Trading Ahead

A trade transacted from a specialist's account even though there is a public order that offsets the trade.

Notes:

Trading ahead is a violation of a specialist's negative obligation to NYSE customers. By trading from his or her own account rather than letting public orders match one another, the specialist is robbing the public of its opportunity to transact the security.

See also: Affirmative Obligation, Negative Obligation, NYSE, Principal, Specialist, Trade

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Trading Ahead

A New York Stock Exchange rule violation. Basically, in this situation the specialist puts their firm's interest ahead of the investor's interest. Consider an example. Suppose that the specialist simultaneously receives orders from two investors, one to sell 5,000 shares of XYZ and one to buy 5,000 shares of XYZ. Normally, these orders are matched. However, suppose that the specialist substitutes (matches) her own firm's 5,000 shares of XYZ. That is, the firm's own shares are sold instead of the order that came in previously. This disadvantages the buyer because the very next transaction will be the order to sell 5,000 shares of XYZ (which will likely put downward pressure on the price). Notice that the firm has bailed out of XYZ at a higher price than if the order was reversed (the specialist's firm selling afterwards). Trading ahead is part of what is known as negative obligation. Trading ahead should not be confused with front_running.