The only way to make money reliably on Wall Street is by front running. Front running means to buy or sell things ahead of others, knowing or Short term front running is often called "illegal".Long term front running is often called "investing".I got the first hint of this in 1969 when I had the opportunity to see the silver ring raders and brokers stood around the ring, a large circular counter in the middle of a large room, the perimeter of which was occupied by phone banks where clerks received orders. Many of the clerks were standing on boxes so that ight to their brokers. The clerks communicated their orders to the brokers by hand signals that everybody could see. Whenever a large buy order was signaled, the ring suddenly erupted with everyone clamoring to buy ahead of the broker, just to sell to him,Some brokers were more careful and required the clerks to quietly write order tickets and run them into the pit. Taller locals stood behind these brokers, trying to get a glance at these tickets in an effort to front rThe ultimate drama in the silver pit came a decade later when the Hunt brothers cornered the market by buying up a huge number of contracts, representing much more silver than there was in all the warehouses. The brothers always used same broker for their buying, Norton Waltuck. This became so evident to all the traders that whenever Waltuck was seen approaching the pit the price immediately spiked up. Soon clerks were seen sneaking upstairs where the 4 World Trade Center. When Norton Waltuck came out of his office on his way to the elevator to the pit, they tried to beat him there, taking the stairs three or four steps at a time While front running is a fairly safe bet, clearly demonstrated by a trader who sent his clerk to watch Waltuck's door with the mission of sending a pager signal the moment the door opened. The trader in
fact almost had to declare bankruptcy when Waltuck, insIn 1977, when I went down to the floor of the American Stock Exchange as a market maker in options, the situation with the clerks and brokers had not than in silver, several other tricks were developed. Many of these were much more subtle; like when the broker would walk into the crowd and ask where he could buy 50 call options and two of us market makers would bothsay to the broker, "OK Sam, you bought 50 at 4 and a half", and then he would launch into a long conversation waiting for the underlying stock to move. "What d you do last weekend?, Did you go to the game?, How is your mom doing? and the kids?" Then as soon as the stock ticked down (thereby lowering the value of the call option), he would say, "OK Sam, I sell you 40 and the two gentlemen will ts each." On the other hand, if the stock ticked up (thereby raising the value of the call option), he would say, "I'll sell you ten and these two clowns in the crowd will sell you 20 contracts each."It paid well to be a specialist in those days.many similar reasons, in 2004 several NYSE specialists were fined $240 million for various forms of front running, so that for most practical purposes, front running became prohibited as far as exchange based trading is concerned. Now that bids and offers change in milliseconds, it is practically impossible to discern or prove front running on such a miniscule time scale.Over the counter trading in instruments that may be incrediblcompletely identical to exchange traded derivatives, are governed by different Recall the relevant part of the Volker rule: insured depository institutions, i.e. banks, may not take positions that would exceed "reasonably expTERM demands of clients, customers or counterparties." That is, if you are a bank,