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CS Professional · IFSCA - Regulations, Listing and Compliances · Capital Market Intermediaries

Meridian Securities, a capital market intermediary registered with IFSCA in GIFT IFSC, receives a client order. Its dealer wants to trade first in his own account ahead of the client order because he expects a price rise after the order is executed. Which principle of the code of conduct for intermediaries does this conduct violate?

The conduct is front running. The dealer uses advance knowledge of a client order to trade for himself first, which breaches the intermediary's duty of integrity and of placing client interests above its own. It is not churning, which means excessive trading to generate commission.

  1. AFront running, because own-account dealing ahead of a client order misuses client information and breaches the duty to put client interests firstCorrect
  2. BChurning, because the dealer executed several small orders for the client
  3. CInsider trading, which applies only to listed company directors
  4. DWindow dressing, because the dealer altered the intermediary's balance sheet

Explanation

Trading ahead of a known client order for personal gain is front running. It breaches the duty of fairness, integrity and priority of client interests expected of intermediaries. Churning is excessive trading to earn commission, and no such facts are given here.

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