Front-Running
Chapters in this video
- 0:00 The sneaky agent scenario: Aaron and the whale
- 1:07 Front-running defined: real order, wrong sequence
- 2:40 Why the state administrator brings the hammer down
- 3:38 The MNPI exam trap: pending order is the secret
- 4:25 Required elements: knowledge, timing, impact
- 5:05 Exam trap: profit not required
- 5:47 Exam trap: actual market impact not required
- 6:28 Rapid-fire exam recap
What this video covers
- The exact chronological sequence that creates a front-running violation: knowledge of a pending order, personal trade placed first, customer trade second
- Why a pending customer order itself counts as material nonpublic information (MNPI), even without any corporate news
- How front-running differs from market manipulation tactics like painting the tape or spreading rumors, since it exploits real trading activity rather than fake activity
- The three required elements for a violation: knowledge of the pending order, timing of the personal trade before the customer trade, and likelihood the order will affect market price
- Why actual profit is never required for a front-running violation, and why actual market impact is never required either
- The specific duty that front-running breaches: the agent's fundamental duty to deal fairly with the customer
- How the Uniform Securities Act (USA) antifraud provisions classify front-running as a fraudulent and deceptive practice
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