Series 63: Unethical Trading Practices

Taken from our Series 63 Online Guide

Unethical Trading Practices

The NASAA outlines a number of unethical practices relating to the purchase or sale of securities through professionals and their firms. Yet again, these prohibited practices are considered taboo because they ultimately create conflicts of interest between clients and their professional, limit clients’ ability to get a fair price for their securities, and prevent them from monitoring their own account.

Most importantly, broker-dealers and agents are always expected to try and provide a price for a purchase or sale that is as close as possible to the current market price. Substantially under- or over-pricing a security, especially when the firm is selling from its own account (known as acting as a “principal”), would be considered a substantial violation. Likewise, buying or selling a security for your own or your firm’s account, prior to doing it on the behalf of customers in order to get a better price (known as “front-running”), is not permitted. Again, customers deserve to get the fairest price possible at the time of their transaction.

Because principal transactions often

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