Pegging Law and Legal Definition

Pegging refers to effecting transactions in an instrument underlying an option to prevent a decline in the price of the instrument shortly prior to the option’s expiration date so that previously written put options will expire worthless, thus protecting premiums previously received.

It is unlawful for any person, directly or indirectly to effect for the purchase and/or sale of any security registered in a national securities exchange for the purpose of pegging. [Friedman v. Salomon/Smith Barney, Inc., 2000 U.S. Dist. LEXIS 17785 (S.D.N.Y. Dec. 7, 2000)].