Trading Ahead

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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.

Trading Ahead

A trade in which a specialist, one who trades only to maintain liquidity in the market, makes a trade when there is an offsetting trade from someone else. For example, suppose a specialist receives an order to buy 100 shares of a stock. Ordinarily, the specialist would look for an offsetting order from the public and only sell the shares from its own account if no such order exists. The specialist trades ahead when it sells 100 shares to the buyer when another order is on record. The specialist does this in order to make a profit for itself. Trading ahead is a violation of NYSE and other rules. See also: Front running.
References in periodicals archive ?
While the firm had earlier been suspicious that it could have sustained a loss from the deal, it reopened its case after two HSBC Holdings forex traders were arrested in the US recently for making personal trades ahead of their clients.
Commodity markets are well supported, which has reinforced by the CRB and the BDI index, which should bode well for speculative positioning and carry trades ahead. There strength of today's gains will be determined by EUR-USD's ability to clear mooted options interest between 1.4250 and 1.4275, while technically the underlying trend is supporting a move into the 1.43s, with very little resistance until 1.4335.
The two British citizens are believed to have used their inside knowledge to engage in a process called front-running, in which they made trades ahead of the December 2011 transaction, resulting in a spike in the price of the currency that was detrimental to the client, prosecutors said.