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The practice of technology-enabled "front-running" was shown in the videos as being unfair, but not illegal

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QUESTIONS: What are your thoughts about the government's role and whether it needs to use more of its resources to search for bad business behaviors and then pass laws to outlaw such behaviors? What are your thoughts about the actions of young entrepreneur Brad Katsuyama whose response was to start a company that offered investors a way to participate in the stock market, but at the same time, avoid being cheated by technological "front- runners"? What role did Katsuyama's personal ETHICS play in pursuing his new business venture? Does this make you think about the role of personal ethics in other areas of business or in your career ahead? Please explain!





Front running: CNBC Explains Published Wed, Apr 2 2014 Simon Smith | Vetta | Getty Images In a foot race, a front-runner takes off ahead of the pack and hopes to build an insurmountable lead. In the stock market, it's someone who takes off ahead the same way but then tries to convince the rest of the pack that he or she is not really a front-runner. Such is the convoluted world of Wall Street trading, where competitors will go to extreme lengths to try to outwit the competition. In conventional terms, front running is something that happens within a firm: A trader gets word that a customer is interested in purchasing a big block of a company's shares, and that trader will purchase shares for his individual account before executing the customer's order. When the customer's purchase gets executed, the price rises and the trader pockets the difference between the new price and what he paid. However, that definition, or at least the term's connotation, has changed some recently. In the Michael Lewis book "Flash Boys," he applies the term to traders who use lightning-quick computer programs—high-frequency trading—to detect orders from rival traders, then jump in front of that trade. The effect is that the rival has to buy at a higher cost and the value of the front-runner's purchase goes higher. Front running is not on its face illegal. It only rises to that level if the trader is using information not available to the public. "Is it the downside of a very electronic world in which we live, or is it something that much more clever?" said Diane de Vries Ashley, a professor of corporate finance at Florida International University. "My deepest suspicion would be a little bit of both."



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