Front-running takes place when a bank or broker-dealer– say, Goldman, Sachs — executes a trade for its own account before filling its customer’s order. Since a large enough trade (executed by institutional investors, for instance) can actually move the price of the security in question, front-running can be a very profitable activity. It’s sort of like fast-food insider trading. It is common knowledge that front-running on Wall Street is rampant, and I interviewed more than one person for my recent Rolling Stone story who accused Goldman of front-running its big clients in all sorts of arenas, from the internet IPO years to the commodities markets.
What caught Zero Hedge’s attention was a curious disclaimer uncovered on Goldman’s website, which includes a trading platform that visitors can use to execute trades. At one point the disclaimer read:
Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resultant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory organization.
Subsequently readers uncovered an even more sinister disclaimer that appears on other Goldman documents (see the quote at the top of this post with the key line “and not for your benefit”). So Tyler Durden over at Zero Hedge wrote to Goldman to ask if this meant what it quite obviously seems to mean, and got this response from the bank’s Senior Vice Scoundrel, Ed Canaday. Note the way he seems to be addressing Dick Durbin, which looks like a case of wish-fulfillment to me:
Dear Mr Durbin:
This is in response to your recent blog about our web site disclaimer. It is quite usual for websites to have disclaimers that refer to the monitoring of site usage. Most web sites, including yours we noticed, track usage by their visitors. This is primarily used for marketing and to help inform decision about enhancing content.
Your suggestion that we monitor our web site to facilitate front-running is untrue and offensive.
Sincerely
Ed Canaday
Vice President
Goldman, Sachs & Co.
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