SIE practice questionmediumFront-Running
A broker-dealer receives a large institutional order to buy 500,000 shares of a stock. Before executing the customer's order, a trader at the firm buys shares for their personal account. This is an example of:
- AInsider trading
- BChurning
- CFront-running✓ Correct answer
- DSpoofing
Explanation
Why C — Front-running
Front-running occurs when a broker-dealer or its employees trade ahead of a known customer order to profit from the anticipated price movement the customer's order will cause. In this case, the trader bought shares knowing the large buy order would likely push the price up. Front-running violates the duty of fair dealing and FINRA rules. It differs from insider trading (A), which involves trading on corporate MNPI rather than knowledge of pending orders.
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