Front running trades is a fraudulent practice that can result in significant financial losses for clients and damage trust in the market. Fortunately, there are ways to detect and prevent front-running, including the use of limit orders, market monitoring, and diversifying broker selection.
Additionally, compliance officers play a crucial role in preventing front-running by monitoring employee communication, even on private chat applications.
Regulatory Advice on Front Running Trade Compliance
The following actions are actions that Compliance team s can take:
- Keep a close eye on employee communication.
- Educate employees on what constitutes front-running and why it is considered unethical.
- Encourage employees to report any suspicious behavior related to front-running.
- Implement policies and procedures that prohibit front-running and other unethical trading practices.
- Conduct regular training sessions to reinforce the importance of compliance with these policies and procedures.
- Regularly review and update policies and procedures to ensure that they are effective in preventing front-running and other unethical trading practices.
- Ensure that employees are not engaging in front-running or other unethical trading practices.
- Monitor both official communication channels and private chat
Compliance officers should keep a close eye on employee communication to ensure that they are not engaging in front-running or other unethical trading practices. This includes monitoring both official communication channels and private chat applications that employees may use to discuss trading strategies.
By being proactive in monitoring employee communication, compliance officers can detect and prevent front-running before it causes harm to clients and the market. Additionally, they can use the information gathered from monitoring to educate employees on best practices and identify areas where additional training may be necessary.
Incorporating regular monitoring of employee communication into compliance programs is an important step in preventing front-running and other fraudulent trading practices. Compliance officers must remain vigilant and up-to-date on the latest regulations and best practices to effectively combat front-running.
What Next for Compliance Teams?
Detecting and preventing front running trades is essential for maintaining a fair and trustworthy market. By implementing strategies such as limit orders, market monitoring, and diversifying broker selection, and incorporating monitoring of employee communication into compliance programs, traders and compliance officers can work together to prevent front-running and protect clients’ interests.