What specific prohibition applies to hedge funds in side-by-side trading?

The specific prohibition that applies to hedge funds in side-by-side trading is that they cannot take positions contrary to other clients. This principle aims to prevent conflicts of interest and ensure that the interests of all clients are treated fairly. In a side-by-side trading scenario, where a hedge fund is trading alongside or in relation to other clients' trades, taking contrary positions could lead to a situation where the hedge fund potentially benefits at the expense of its clients.

Maintaining this prohibition is crucial in the investment advisory industry as it upholds the fiduciary duty that advisers owe to their clients, fostering trust and ensuring that no client is unfairly disadvantaged by the actions of the adviser. By adhering to this guideline, hedge funds can help to mitigate the potential for conflicts of interest and align their trading activities with the best interests of all clients involved.