Credit Suisse pays $135 million to settle New York’s charges of front running the market — a kind of insider trading


Credit Suisse has agreed to pay $135 million to settle a lawsuit filed by the New York State Department of Financial Services. The Consent Order in the case asserts that the bank was guilty of “front-running” in which a trading desk would purchase stock early in anticipation of recommending a large group of purchases with their clients with big trades. This causes the stocks to increase in value during the day allowing the trading desks to take advantage of the insider information to make vast profits. The practice is illegal. The court documents allege:

From at least April 2010 to June 2013, Credit Suisse employed an algorithm designed to trade ahead of clients’ limit and stop-loss orders. Credit Suisse programmers designed the algorithm to predict the probability that a client’s limit or stop-loss order would be triggered. Credit Suisse programmers and traders had ongoing and significant discussions about how the algorithm could be used to “front run” customer orders. Credit Suisse predicted that this particular algorithm would generate approximately $2 million in profits for the calendar year 2013.

What makes front running more difficult to spot these days is that the process of purchases of stock are run through computers and are automated. The Court records also said: “in May 2012, an eFX trader unabashedly bragged to the Head of eFX: “it is the name of the game if we front-run orders. Sometimes you win sometimes you lose. It’s up to us to define the front run rules.”

In July 2012, this eFX trader wrote to another eFX colleague, “[I] think with a smart frontrun we can make money. We will lose most of the LO [limit order] clients if we start executing on bucket rates. The algo should be smart enough to optimize this.”

The lack of subtlety here carried over into bland and seemingly quotidian business discussions. These are kinds of conversations that are usually carried out on big whiteboards, not the message apps whose shady transcripts we’re so used to reading in cases of forex misdeeds.

Improving the effectiveness of this algorithm was an important business objective of eFX senior management in 2012. In one e-mail from February 2012, for example, the Head of eFX identified as a priority: “Improve order front running (e.g., limit front running in % of order amount).”

Apparently to encourage traders to employ the front running strategy, the Head of eFX wrote, in a January 2012 e-mail, that Credit Suisse should improve its “PnL tracking on the front running order[s].” The lead algorithmic researcher in eFX management echoed that imperative, noting that the Quantitative group sought to “Attribute P&L to front running of limit orders.”

The Credit Suisse trading platform was known as “eFX” and that the bank improperly employed a delay function when determining whether to fill customer orders, known as “Last Look” on all clients’ orders to increase the Bank’s profits at the expense of a transparent competitive model. The FX market is centered on “spot” transactions, the exchange of national currencies between two counter parties usually settled within two business days.

The practice of front-running, which is really another form of insider trading is still practiced frequently world-wide. Because of large block trading by computer algorithms, it is a difficult activity to uncover. However, whistleblowers are now coming forward to the SEC as front running is an activity that yields large fines and can result in large whistleblower rewards.

Jeffrey Newman is representing whistleblowers who are reporting front-running to the SEC through its whistleblower program which allows a whistleblower to recover a portion of what the Government collects.  He can be reached at 978-880-4758 or at