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Since a stockbroker can track and sort the best portfolios of its customers.

Can a employee of a stockbroker spy/track and copy positions of a performant customer portfolio legally?

Thanks

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  • I assume you mean "best" by comparing past performances?
    – njzk2
    Jun 24, 2023 at 10:00

3 Answers 3

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Legally? Yes - it's called "copycat investing".

Ethically? A bit grayer, but since it does not harm the one you copied from, I can't think of an ethics problem if they are investing for themselves. If an advisor is just copying someone else's trades on behalf of a client (without disclosing their strategy), it's much more dangerous as they are supposed to be a fiduciary of their client and open themselves up to negligence claims.

(I'm intentionally omitting obviously illegal/unethical actions like insider trading and front-running)

So they can, but the question is whether they should. Given that Past results do not guarantee future results and copying a portfolio that has done well in the past is more likely to be "buying high", this is probably not a good strategy in general.

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  • If you only trade long, copycat investing does not harm you.
    – Joshua
    Jun 25, 2023 at 0:56
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    I have worked in these stockbroking firms and they are HEAVILY regulated to prevent insider trading. Every trade I made had to be approved by the company's fraud department and they regularly refused permission to make a trade (I often though I lost more on missed trading opportunities than I made in salary.) The most common reason for refusal was that it was a stock the company was looking to invest in or researching. I live in the USA, so YMMV.
    – Fraser Orr
    Jun 25, 2023 at 15:07
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a stockbroker can track and sort the best portfolios of its customers

So what?

  • The financial services industry is heavily regulated. Few employees would have the kind of access you describe, and their trading is likely to be restricted
  • They may be able to see current/past positions, but it doesn't tell them why they were established and whether the customer has positions at other brokers
  • As long as they aren't frontrunning customers, why would you care? It would move prices in the customer's favor, if at all
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An employee of a stockbroker trading based on what they learn from their job would be misusing their employer's data, and the stockbroker company almost certainly would have rules against that. As for whether the company can do so, if they are executing their own trades before their customer's trades are executed, that's known as "frontrunning", and it's generally illegal (if the stockbroker has a fiduciary duty towards their customer, which they probably do, for instance, then it would be illegal). If the stockbroker's trades happen afterwards, I think that's legal, but it's arguably unethical, as the customer isn't consenting to this use.

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