Ethical Issues in Securities Trading and Personal Investment Strategy Analysis
Overview
This assignment examines unethical trading practices, specifically front-running by NYSE specialists, and analyzes investment strategies from both risk-averse and intertemporal consumption perspectives. The student explores the consequences of legalizing front-running, provides investment recommendations based on risk tolerance, and discusses optimal savings and consumption decisions under different interest rate scenarios.
What this coursework covers
- Analysis of front-running as unethical practice and breach of fiduciary duty with numerical example
- Risk-averse investment strategy recommendation targeting third scenario with $25,000-$50,000 allocation
- Intertemporal consumption analysis with indifference curves at varying interest rates (20% vs 3%)
Preview
TRADE AND INVESTMENT STRATEGY ASSIGNMENT
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Question 1
- The visitor is accusing the NYSE specialist of front running. Front running is an unethical practice in which the company’s specialist uses the non-published information to benefit. In such cases, the employee or broker ensures that all his/her trades are executed before acting on behalf of the client’s requests.
- When a specialist engages in front running, he/she breaches the fiduciary duty to the client. As such, he /she would rush to buy the shares of a given company that the client has requested, then later executes the client’s trades. So, instead of transacting for the client first, he /she would purchase the company’s stock for himself., say 3,000 stock at $13 for his/her account. Later, he would transact the more significant trade for clients say the purchase of $100,0000 worth stock, which would drive up the stock prices of the company’s stock to say $16 per share. Immediately, the specialist would sell all his/her stocks at the new price of $16, each making a quick illegal profit of $9000.
- Supposing from running were legalized, the prices would be set through brokers' illegal dealings. For example, the brokers would hoard more stocks and sell them at higher prices after acquiring more confidential information from the corporation. Also, undisclosed information regarding the possible fall in the stock prices would benefit specialists and brokers who have access to them before everyone.