Front-Running

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Chapters in this video

  1. 0:00 The hot dog bun analogy for front-running
  2. 1:03 Buying ahead: the four-step chronology
  3. 3:02 Selling ahead: profiting from a crash you cause
  4. 3:33 The zero-profit exam trap and four elements
  5. 5:05 Why a customer order is material nonpublic information
  6. 6:02 Rapid-fire exam recap

What this video covers

  • The exact sequence of front-running: knowledge of a pending customer order, then trading your own account before executing the customer order
  • How the buy-ahead scheme works when an agent purchases shares before processing a large customer buy order to capture the anticipated price spike
  • How the sell-ahead scheme works when an agent dumps holdings before a large customer sale to avoid the anticipated price drop
  • Why a pending customer order is itself material nonpublic information (MNPI) to the agent, even with zero corporate news about the underlying issuer
  • Why profit or market impact is not required for the violation: the act of trading ahead is the crime
  • The four elements the state administrator uses to prove front-running: knowledge, timing, likely market impact, and misuse of information
  • The critical distinction between front-running and traditional insider trading based on the source of the material nonpublic information

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This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 63 course adds adaptive practice questions and spaced-repetition flashcards.

Read the Free Lesson → free · no signup wall