How to prevent brokers front-running orders?

Discussion in 'Order Execution' started by chinook, Dec 13, 2003.

  1. I was wondering this for big names like George Soros, Steve Cohen etc.. How do they make sure that their brokers do not piggy back their orders? Do they enter orders from multiple brokers?

  2. Ebo


    Its called direct access or trust!
  3. cstu


    They pay enough in commission dollars where they will not be subject to frontrunning. Please, these are the guys that are taking advantage of the mutuals and pensions by getting info about other orders.
  4. jessie


    You know your floor brokers well, and use only those you trust. A related point is that not all floor brokers are equally skilled or have the same amount of clout on the floor. I regularly split up my large orders, and enter them in pieces through my different floor brokers, to see who is getting me the best fills.
  5. Splitting up orders into small lots and placing them in .02 (or small) increments discourages the SPEc. from sitting in front of your order. He can still pick a price range, but it makes it harder to make $$ off your flow and use it for protection..

    Also you can feed him additional pieces as he fills you. This forces him to not take the contra side of your order...
  6. Transact Futures

    Transact Futures Transact Futures

    May be they are doing their own execution via the electronic trade. I doubt it but it is a thought.
  7. Law maybe only :D
    Best Execution - The stockbroker must find the best deal for the client. As an advisor, he or she is responsible to the client for the money being invested. An advisor must assess what the appropriate risk level for the investor is, and which market will provide that investor with the greatest gains. The stockbroker is responsible to buy and sell within this market.

    Trading restrictions for employees of brokerage houses
    Information control between departments of brokerage firms

    Knight Trading Group, a leading market maker* and asset management firm, is one of Nasdaq’s* biggest players. It is parent company to Knight Securities L.P. The largest comprehensive market maker in the Nasdaq and OTC* (over-the-counter) securities, Knight Securities L.P. is a major participant in those markets.

    In June of 2002, more charges against Knight arose—this time perpetrated by a former employee, Robert Stellato. When he was head of Knight’s institutional trading, Stellato claims to have witnessed multiple violations of NASD and SEC rules. Among his accusations are allegations of front running stocks, a policy in which traders perform their own transactions ahead of their customers’ orders. Front running usually results in a lower price for the trader and a higher price for the customer. Stellato claims that Knight traders engaged in front running with the knowledge of Knight’s CEO, other executives, and the company’s attorney. Knight has denied the allegations.