Securities and Futures Markets:

Efforts to Detect Intermarket Frontrunning

GGD-91-135: Published: Sep 26, 1991. Publicly Released: Oct 28, 1991.

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Pursuant to a congressional request, GAO reviewed regulatory efforts to detect intermarket frontrunning, which occurs when market participants improperly trade stocks, stock options, stock index options, or stock index futures on the basis of nonpublic market information about imminent and material transactions in those instruments.

GAO found that: (1) although some market participants state that intermarket frontrunning is less of a problem now than in the past, they also state that other intermarket trading abuses are now occurring; (2) the reviewed self-regulatory organizations (SRO) have programs designed to detect stock options and stock index frontrunning; (3) the Securities and Exchange Commission (SEC) has reviewed its SRO programs and recommended improvements that are in progress; (4) SEC is studying whether certain intermarket trading abuses, including some types of intermarket frontrunning, are occurring; and (5) Commodities Futures Trading Commission officials said that they had begun reviewing SRO programs.