Bucketing Law and Legal Definition
Bucketing refers to an illegal practice of a broker receiving an order to buy and sell stock. It is an unscrupulous activity in which a broker does not execute the actual order received. In this practice, a broker initially agrees to buy or sell securities on behalf of clients at a given price. However, the broker instead buys at a lower price or sells at a higher price. In addition, the broker keeps the difference as profit.
Bucketing is illegal in the U.S. because it is a violation of the brokerage's fiduciary responsibility to act in the best interest of the client. Brokerages that routinely engage in bucketing are known as bucket shops.
The following is a case law defining bucketing:
Bucketing is defined as a method of doing business involving orders of customers for the purchase or sale of commodities for future delivery, wherein those orders are not executed by bona fide purchases and sales with other traders. They are simply matched and offset in the soliciting firm's own office and the firm itself takes the opposite side of the customers' orders. [Mak v. Wocom Commodities, 112 F.3d 287 (7th Cir. Ill. 1997)].