What Does "Backing Away" Mean?

When a person or company refuses to purchase a financial instrument, even if a deal is in place, it is called "backing away". This term does not apply if there is anything incorrect about the deal; the seller must be offering the correct financial instrument or the buyer has the right to refuse a deal. While backing away is not encouraged, there can be a variety of reasons for it, especially among brokers and dealers. The action violates many regulations, and the violator may be disciplined with punishment.

It is common for a buyer to contact a seller to express interest in buying some financial instrument. When a buyer is backing away, he is refusing to purchase the assets from the seller, even though a deal may have been created. This can occur with any instrument, whether stocks, bonds or any other assets.

If the seller is not adequately representing the deal between the two parties, such as increasing the price or selling fewer assets, then the buyer can undertake backing away without punishment. Sellers that do not accurately represent the deal may be susceptible to punishment or fines. When the seller correctly represents the deal by selling the correct number of assets at the agreed upon price, then the buyer cannot legitimately back away from the deal.

Any type of buyer can perform the act of backing away, but brokers or dealers typically do this more than other buyer types. A buyer may do this is because he or she does not have the money to buy the assets, or simply because he or she has lost interest in the deal. Other, more legitimate reasons include having a backing party that refuses to give the buyer the money for the purchase or the buyer feeling as if the investment may not yield adequate returns.

While a buyer may be able to get away with this a few times, backing away is a violation of many rules made to regulate financial dealings. If the buyer is lucky, he or she will receive a warning, though he also may be temporarily banned from buying activity. More severe punishments include fines and being permanently banned from buying activities. This ban typically only covers the domestic country or region in which the transaction is pertinent, because most agencies made to enforce the policy against backing away do not have any authority in other countries or regions.