Business PracticesQuestion 58 of 100
An agent learns that his firm is about to execute a very large buy order for a thinly traded stock and immediately buys shares for his own account before entering the customer's order. This is:
a.Permissible, because the agent's order was small
b.Permissible if the agent later discloses it
c.Front-running, a prohibited practice that misuses knowledge of a pending customer order
d.Merely a suitability issue
Explanation
Front-running is the use of advance knowledge of a pending block order to trade ahead of it for the agent's own benefit, and it is prohibited regardless of the size of the personal order. Later disclosure does not cure a violation that was complete when the order was entered. The problem is misuse of customer order information and market integrity, not the suitability of the security.
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