What is Tailgating?
Tailgating occurs when a broker buys or sells a security after doing the same for a client.
How Does Tailgating Work?
Let's say John Doe is a CEO. She tells him to buy 5,000 of Company XYZ for her account. John executes the trade for Jane and then tailgates by buying another 5,000 shares for himself because he has been watching Company XYZ and agrees with Jane that the CEO change should be a good thing for the stockholders.for Jane Smith. Jane calls John and tells him she just saw a press release that Company XYZ is bringing in a new hot-shot
In some cases,tailgate when the client's order is so large that its execution affect the price of the security.
Why Does Tailgating Matter?
Tailgating is not the same as frontrunning. In frontrunning, the broker executes the trade for his own account after executing the client's trade. Frontrunning is illegal; tailgating is just in poor taste for many reasons, not the least of which is that the broker's job is to make for his clients and know more than they do.executes the trade for his own account before executing the client's trade. In tailgating, the