New rules aimed at improving protections for certain customer orders on the Nasdaq Stock Market won approval Friday from the Securities and Exchange Commission.
At issue is the practice of brokers trading ahead of a customer’s limit order, which can give a dealer an unfair advantage in knowing the likely direction of a stock’s price. Many market experts say the practice unfairly puts the dealer’s interests ahead of the customer’s.
A limit order is a customer’s request to buy or sell a security at a specific price or better.
The SEC’s action prevents market makers, brokers who form the backbone of Nasdaq by buying and selling stocks from their own accounts, from trading ahead of any customer limit orders. The latest rule closes a significant loophole in an earlier rule by applying to orders sent from other brokers.