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Interpositioning

Interpositioning is the illegal practice of placing a third-party broker between a client and the best available market price in a securities transaction, often resulting in higher costs for the client. This practice violates securities laws because it prevents clients from receiving the best possible price and can lead to excessive fees or commissions. Regulators such as the SEC monitor for interpositioning to ensure that brokers act in their clients' best interests.

Example

A broker unnecessarily routes a client’s stock order through an intermediary, causing the client to pay a higher price than they would have on the open market, which constitutes interpositioning.

Key points

• The illegal practice of inserting a third-party broker between a client and the best available market price.

• Results in higher transaction costs for the client.

• Monitored and regulated to prevent brokers from acting against clients' best interests.

Quick Answers to Curious Questions

Interpositioning is illegal because it prevents clients from getting the best market price, often leading to unnecessary fees or higher transaction costs.

It increases costs for investors by introducing unnecessary intermediaries in transactions, leading to higher prices and reduced returns.

Regulators like the SEC monitor brokers’ activities to ensure they act in their clients’ best interests and do not engage in interpositioning.