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front running

manisha ahuja (article clerk) (147 Points)

30 June 2010

what do u mean by front running?

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Riyaz Khan (CA CS (Exec) MBA (Fin) Asst. General Manager-SEBI Internal Auditor-British Certifications Inc.) (1315 Points)
Replied 30 June 2010

The term Front Running itself explains its meaning. It means running in front of other and you know this term is mainly used in the context of Securities Market.

Suppose Mr. "A" is a broker or trader in share maket and trades in share market on behalf of his clints. He is supposed to execute the trades on behalf of his clints based on their instructions. Suppose a big order comes to buy "XYZ" scrip, now he knows that when he will put this buy order the price will go up, therefore, before putting that big order, he himself puts his own order and buy the same shares, and after price rise, he exits the scrip i.e, he sells his shares and books his profit, This is an example of Front Running. Front running also heppens in many other ways.

Therefore, front running simply means using the precise information about big trades in share market and using that information for persona gain before executing those large trades.

Hope, it will clear the meaning of Front Running.

Regards,