Interpositioning(redirected from Interpositioned)
The practice of using a second broker in a securities transaction, which is considered illegal it is if used to generate additional commission.
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The act or practice of adding another broker-dealer to a transaction when there is no reason to do so and the extra broker-dealer does not provide a necessary service. Generally speaking, interpositioning occurs when two broker-dealers agree to insert the one into the dealings of another. This allows both to extract commissions without doing any work; obviously this is detrimental to the client because it forces him/her to pay money he/she does not need to pay. Interpositioning is illegal under the Investment Company Act of 1940, but it still occurs. Indeed, it was relatively common during the first few years of the 2000s.
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The involvement of a third party between a broker-dealer and the best available market price that results in the customer paying a bigger markup or markdown than would have been the case if the third party had not been present. For example, Dealer A satisfies a customer order to buy a security by purchasing the security through Dealer B who in turn purchases the security from the market maker. Dealer B marks up the security to Dealer A, who then marks up the security again when selling it to the customer. Interpositioning is considered unethical by the National Association of Securities Dealers.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.