Getting ahead of your clients? A look at front-running

THE Monetary Authority of Singapore (MAS) on Aug 14, 2019, issued prohibition orders for three individuals who were earlier convicted for insider trading. According to MAS: "The three individuals had engaged in a front-running arrangement over a period of seven years and colluded to misuse confidential information obtained in the course of their work for personal gain. They were representatives of Capital Markets Services Licence holders when they committed the offences. In July 2019, Mr Leong (former representative of First State Investments Singapore), Mr E (former representative of UOB Kay Hian Pte Ltd) and Mr Toh (former representative of First State Investments Singapore) were convicted of insider trading offences and sentenced to 36 months, 30 months and 20 months imprisonment respectively".

What is front-running?

Front-running involves trading for one's personal account before trading for client accounts. CFA Institute, a global professional body of investment professionals, has a specific Standard of Professional Conduct to address this issue. The Priority of Transaction Standard states that "investment transactions for clients and employers must have priority over investment transactions in which the CFA Charterholder is the beneficial owner". The Standard clearly spells out the responsibility of Charterholders to give the interests of their clients and employers priority over their personal financial interests.