Front Running

Front Running

Context: In the recent past, India’s mutual fund industry has been hit by several charges of front-running

Concept:

Front-running is a market malpractice where a dealer, trader or fund manager who is aware of a large upcoming share purchase order buys the same share in advance in bulk. 

Such bulk orders drive up share price. Personal gains aside, front-running raises a question mark on the sanctity of fair markets and price discovery. Since the bulk buying happens ahead of big purchases by a fund or large investor, the share price has already run up, which affects the price at which the fund ultimately ends up buying the stock, in turn affecting investors in the fund.