DEFINITION of ‘Tailgating’
Tailgating is when a broker, financial advisor or other sort of investing agent buys or sells a security for a client, and then proceeds to make the same transaction for himself. While tailgating is not an illegal practice, it is frowned upon and considered unethical by professionals in the field.
BREAKING DOWN ‘Tailgating’
Tailgating is legal; however, it is also a highly unethical act. It is easily confused with two other investment-related actions, both of which are illegal. Investors and practitioners should be aware that, while it may appear similar, tailgating is not the same thing as the practice of insider trading. While insider trading occurs when the purchase or sale of a security arises from confidential, or proprietary, information, tailgating takes place when the broker takes a cue or trade request from the client with the client’s own information, and then places the same trade for his own account based on the information the client provided.
Tailgating should also not be confused with the practice of front running. While tailgating is seemingly more similar to front running than it is to insider trading, front running is an illegal action that occurs when the practitioner uses the investment information the client provided and performs the trade for himself before doing so for the client.