Front running


Also found in: Wikipedia.

Front running

Entering into an equity trade, options or futures contracts with advance knowledge of a block transaction that will influence the price of the underlying security to capitalize on the trade. This practice is expressly forbidden by the SEC. Traders are not allowed to act on nonpublic information to trade ahead of customers lacking that knowledge.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Front Running

The act of entering a trade, either with a long or short position, knowing that other investors are about to take a position that will positively influence one's own. For example, one may buy Security A knowing full well that other investors are also about to buy Security A in large blocks, causing its price to increase. This will allow the investor to sell Security A at a much higher price. Front running is forbidden by the SEC as a form of insider trading. It is also known as stepping in front or pennying.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

front running

Entering into a trade while taking advantage of advance knowledge of pending orders from other investors. For example, an exchange specialist may step in front and buy stock for slightly more than the price offered by other investors. The 2001 change to pricing stocks in pennies rather than fractions facilitated front running by reducing the extra amount that must be offered to step in front of other orders. Also called pennying, stepping in front.
Case Study The switch to pricing stocks in decimals rather than fractions brought narrower bid-ask spreads at the same time it raised new concerns about front running by specialists and market makers. With penny intervals in decimal pricing, market makers found it less expensive to step ahead of a large order. Suppose an institutional investor has placed a limit order to buy 50,000 shares of XYZ stock at $35.50. Knowledge of the limit order allows the exchange specialist or Nasdaq market maker to step ahead of the institutional order and offer $35.51 with little risk of incurring a big loss. In the event the stock price doesn't rise, the market maker can sell the stock for $35.50 to the institution that placed the limit order. On the other hand, a rise in the stock price produces a nice profit for the front-running market maker that offered minimal price improvement. Front running was considerably more expensive with fractional pricing, which resulted in price intervals of 1/16 (6.25¢) to 1/8 (12.5¢). Thus, decimalization benefited investors who profited from reduced spreads at the same time it increased the possibility that limit orders would not be executed.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Front running.

If you trade stock or other investments because you know that an upcoming transaction by a third party is likely to affect the market price of the investment, you're front running.

Because front running, sometimes known as forward trading, relies on information that isn't available to the general public, it's considered unethical in certain circumstances.

One example is a broker-dealer who trades at a better price for a personal account than for a client's account.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
The July import and export figures followed a big May-June gyration, leaving what has been a near-flat 2019 growth trend for both exports and imports after big 6%-8% gains in 2018 that benefited from "front running." Analysts expect another batch of front-running as analysts approach new 2019 tariff deadlines.
Dounikos, who was among five runners in the race for Elliott, finished strongly from the last fence to defeat the front running Wishmoor by four and a quarter lengths.
NEW YORK, July 20 (KUNA) -- US charged Wednesday two global heads of HSBC Bank for orchestrating a multimillion-dollar front running scheme.
It was alleged that HDFC Asset had failed in its obligation with respect to alleged acts of front running committed by its employees and thereby violated SEBI regulations.
ISLAMABAD, September 15, 2011 (Balochistan Times): The Security Exchange Commission of Pakistan (SECP) has imposed the penalty worth Rs.5 million for front running and insider trading.
The winner made the most of his front running position when taking the sting out of his rivals a quarter of a mile from home.
Spitzer, the front running gubernatorial candidate, would gain control over the project if he is elected and the PACB either rejects the current station plan or postpones it until he is in office.
Sent off the 7-4 favourite for the Grade 2 contest, the Pat Hughes-trained and Joey Elliott-ridden gelding improved to challenge the front running Lincam between the final two fences before touching down in front after the last and staying on well to score by two and a half lengths.
At Lingfield, the front running Innkeeper can benefit from a drop in class and distance and land the seven furlongs Bet Tax Free Today With Bet Direct Claiming Stakes.
Inventories have been growing much faster than sales since mid-2018 with a lift from tariff "front running," as importers are disproportionately captured in the wholesale report.
The basic purpose of front running is to take advantage of the price movement caused by the large trading order once it is executed in the market.
Kingscote adopted the same aggressive front running tactics when the pair won a conditions event at Salisbury 11 days previously and although Say if joined him inside the final furlong, the Daggers Drawn colt did not shirk the challenge to get the verdict by a short head.