Backing Away (Securities Market) - Explained
What is Backing Away?
Written by Jason Gordon
Updated at April 17th, 2022
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What is Backing Away in the Securities Market?
When a market maker fails to honor or respect the quoted bid or ask price for a minimum quantity of security, backing away will occur. A market maker is a person who deals in securities or assets, he buys and sells assets at specified prices in the market. When this market maker fails to abide by quoted bid for minimum quantity of security, backing away will occur and thus is seen as a violation of market regulations. Backing away is not encouraged by bodies that regulate the market, this is why there is an automated surveillance system that monitors market activity and give room of backing away complaints.
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How Does Backing Away Work?
The failure of a market maker to follow through with a security transaction or fulfill market obligations after a quoted bid has been made leads to backing away. For instance, if Bank W is the market maker for a stock being sold by Company A, and an investor already showed interest in buying 1, 000 shares. If Bank W announces that the asking price of the stock is $45 and bid is $44,56. If the investor already placed an order for 1,000 at $45 and Bank W suddenly fails to follow though the security transaction by changing the ask price or quoted bid, this is backing away. Bank W has violated the rules of SEC and FINRA, thereby liable for punishment. There are however certain exceptions in which the market maker need not to abide the quote rules of the industry. Backing away is a violation of the firm quote rule and an aberration according to the Securities and Exchange commission Rule. when backing away happens, complaint can be filed with the Market Regulation Department not later than five minutes after the occurrence of backing away. If a complaint is not made promptly and within the stipulated time, the department might experience difficulty in securing a contemporaneous trade execution for the market trader, therefore, the backing away cannot be resolved. If a contemporaneous trade execution is obtained from the market maker, there might be no immediate penalty meted to the offender. If however, there is repetition of such violation, disciplinary action will be taken.
