Trading, Accounts & Prohibited ActsQuestion 257 of 398
A trader learns his firm is about to place a very large customer buy order that will likely push the price up. He quickly buys the stock for his own account first. This is best described as:
a.Legitimate proprietary trading
b.Front-running
c.Dollar-cost averaging
d.A permissible hedge
Explanation
Front-running is trading ahead of a known, imminent large order to profit from the expected price move it will cause. It breaches the duty owed to customers and the market and is a prohibited practice.
Law Reference: Securities Exchange Act of 1934Practice all 398 questions free — no signup required.
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