Front running or Insider trading

Asked 12 months ago - New York, NY

If I am registered trader, and have been shopped an order from an NYSE floor broker for a Market On Open order, can i trade with that order on the opposing side in the opening cross on nyse. It doesn't seem this would be front running because I am providing liquidity to the shown order and thereby helping to improve mkt impact for said order. But being shopped this order constitute insider trading?

Attorney answers (2)

  1. Jeffrey Steven Feinberg

    Contributor Level 13


    Lawyer agrees

    Answered . When you say you are a "registered trader", do you mean that you are a market maker? Are you an in-house trader at a FINRA member firm? Or are you merely an individual with a series 7 license?
    Depending upon the precise description of your position, you may be subject to NYSE Rule 15A, Order Protection Rule. The Rule is too lengthy to discuss here and you should fully familiarize yourself with it.
    In pertinent part, Rule 15A(a)(1), (b)(2) states:

    (a) Definitions
    (1) An "Exchange trade-through", as that term is used in this Rule, occurs whenever a member on the Exchange initiates the purchase on the Exchange of a security traded through ITS ("an ITS Security") at a price which is higher than the price at which the security is being offered (or initiates the sale on the Exchange of such a security at a price which is lower than the price at which the security is being bid for) at the time of the purchase (or sale) in another ITS participating market center as reflected by the offer (bid) then being displayed on the Exchange from such other market center. The member described in the foregoing sentence is referred to in this Rule as the "member who initiated a trade-through".

    (b) Trade-Throughs
    (1) When purchasing or selling, either as principal or agent, any ITS Security on the Exchange or by issuing a commitment to trade through the System, members on the Exchange should avoid initiating a trade-through unless one or more of the provisions of paragraph (b)(3) below are applicable.

  2. Robert V Cornish Jr.

    Contributor Level 16

    Answered . I think NYSE Enforcement would take the position that the only person for whom you're providing liquidity is yourself, as your trading on the other side of the order was precipitated by the order. Your issue sounds more like an "interpositioning" issue than an insider trading/front-running issue. All of this of course is dependent on whether you're making a market.

    The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client... more

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