interposition

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This Note will demonstrate that there is a fiduciary relationship between specialists and their public customers and will untangle that relationship to show that it prohibits interpositioning and that interpositioning was fraud under Rule 10b-5.
The Legal Background of Interpositioning and Some Economics A.
Part I of this Note introduces the reader to the NYSE and its specialists, explains interpositioning, discusses the background law that relates to specialists--SEC Rule 10b-5, (14) fraud, and fiduciary duty--and explains some economic terminology that will later help put the role of specialists and interpositioning into perspective, and to consider this area of law from a more Legal Realist perspective.
This Part discusses the background concepts and law behind the interpositioning prosecutions.
Interpositioning is occasioned by a pair of matchable limit orders for some security, say a bid limit order at $100 and an offer limit order at $99.
Attorney for the Southern District of New York indicted fifteen individuals working for specialist firms for fraud under Section 10(b) of the Securities Exchange Act of 193449 and Rule 10b-5 (50) for interpositioning.
The courts generally found that interpositioning did not violate Rule 10b-5 because the government could not prove deception (53) or any untrue or misleading statements (54)--or statements made misleading by an omission.
12, 2005) ("NYSE did not establish an automated surveillance system specifically designed to detect interpositioning misconduct until late 2002.
July 18, 2008) (describing evidence regarding detected interpositioning violations, the frequency with which the violative trades were profitable to the firms' proprietary account, and the drop off in violative trades are the NYSE investigation was announced); see also Defendant's Memorandum of Law in Support of Motion for Judgment of Acquittal and Motion for New Trial at 31-33, United States v.
could not reasonably have concluded, without speculating as to customer expectations and beliefs, that interpositioning was deceptive.
at 534 (describing government chart showing 26,283 interpositioning trades).
2d at 534 (describing allegations of 26,283 interpositioning trades).