Bank Of America Caught Frontrunning Clients

Apparently Bank of America is under investigation for violating a form of insider trading rules called "Frontrunning".

Frontrunning (I think) is when a brokerage trading firm decides to somehow make money from their own trades based on orders placed by clients.

They simply do a "shadow" trade ahead of filling a trade order from a client.

They certainly would be able to influence a commodity price with a larger than normal block trade by a client.

After the client's trade, they simply sell their own positions and waalaa ---- profit in minutes (I think). Plus, they make a commission from the client's trade.

Very complicated.

And it seems trades involving U.S. government-owned mortgage giants Fannie Mae and Freddie Mac have been in play as well?

I would imagine any mistakes could cost millions.

But it seems BOA has reported many daily profits on their own "insider" style trading practices.

Apparently, this was deduced from profit/loss statements and filings.

hard to follow without understanding how the system works;

Every time a TBTF bank releases its 10-Q, we head straight for the section, usually well over 100 pages in, that discloses the bank's total profitable trading days. ....

In summary, so far in 2013, Bank of America lost money on 9 trading days out of a total 188.

Statistically, this result is absolutely ridiculous when one considers that the bulk of bank trading revenues are still in the form of prop positions disguised as "flow" trading to evade Volcker which means the only way a bank could make money with near uniform perfection is if it either i) consistently has inside information that it trades on or ii) it consistently front-runs its clients.

Long detailed article;
Bank Of America Caught Frontrunning Clients



Can somebody explain this ??

reply to post by xuenchen


In the simplest terms, what happens is an analyst or broker purchases shares before recommending a stock as a strong buy (for analysts) or placing a large purchase order for a client (for brokers). What this does is allow the analyst/broker to profit from the run up in stock price that they caused, either by the favorable recommendation or large purchase. For example, I buy stock at $10 per share right before I place a purchase order for 200,000 shares for a client. The stock price will run up, let's say to $10.25; therefore I profit $0.25 per share by manipulating the market.

reply to post by ExNihiloRed


Yup.

That's It !!

reply to post by xuenchen


The amount of losses at risk depends on the amount of stock BoA would buy. I would guess this wouldn't be large purchases because that would be obvious and in and of itself cause the stock price to push up, limiting profits. If these were quick small transactions that occurred frequently, the profits would be very good with little risk. I'd assume if they anticipated a stock rise but it fell, losses would be minimized by stop losses in place and because there would be a low amount of stock at risk. That's just me speculating, though.

reply to post by ExNihiloRed


Maybe they use option calls and puts ?

More profit potential.

It is far too obvious that the institutions we once placed our trust in to deal with us honestly and fairly.....have been ripping us off big time!
The organisations which run and influence our world have turned corrupt or always were corrupt (we were just hoodwinked)
hard to admit, but true nevertheless................
The banks are for stripping our wealth from us......
The government is for enabling the big corporations and the rich.....
The health care system is complicit in the fraud as well.......
And the police are for the protection of, and service to, themselves and the rich elite.........
Time for the armies to come home from the wars and bring their guns with them.............

reply to post by stirling


You really hit it all there, huh?

I'm not familiar with this type of practice. Nice to know it exists though. I guess I will have to research it a tad bit so I know what it is about.

This is what most of these investment houses did with 401k money, allowing them to steal trillions from the 401k plans they were supposed to be serving.

This is why a debt reset should be in order.

All of these super rich people should lose every bit of gain they have made, and then some, since Newt got the whole deregulation of the banks scam passed.

The idea that you can get rid of the laws that keep investors from stealing from their clients, and expect market response to prevent crime is just ridiculous, but that is what people bought into with the whole free market scam.

reply to post by poet1b


The problem with that is how do you separate what they made honestly from what they didn't?

Why should they lose what was honestly made because I have no doubt some of it was.

And if you sanction taking what was made honestly, what's to stop them from taking what you or I made honestly?

And, lastly, whom do you sanction and trust to do the taking and distributing?

Nossir, there's been a lot of dirty dealing, but you're asking for a whole kettle of really ugly fish to be opened with your wish.

reply to post by ketsuko


There is no llegitimate money being made

Its all a scam

All that money has blood on it

reply to post by Another_Nut


and on top of that
it would be ridiculous to just say "ok you broke the law and screwed over or ruined countless lives but just give back what you gained illegally and were square"
asset seizure should definitely be a part of the punishment
if you are selling drugs you can have your assets seized on the grounds that drug money could potentially have paid for them why should the same logic not also be applied to financial crime?