Frontrunning, also knows as Tailgating, is a practice where a person with previous knowledge of a trade buys the asset in advance to sell it to the original buyer at a higher price. Globally, frontrunning is associated with insider trading where exchange officials user insider knowledge to buy scrips which can make good listing gains.
Frontrunning is a restricted activity for most of the world in traditional markets like stock markets. However, due to a lack of proper regulation, frontrunning is very common in DeFi and crypto trading.
Recently, there was a frontrunner who made hundreds of thousands by frontrunning tokens which were about to get listed on Binance. The activity which was going on at least from March 2021, was exposed by Coinbase Director Conor Grogan and vetted by top blockchain reporter Colin Wu.
Is Frontrunning illegal?
Yes, it is for most of the major economies like Singapore, Japan, India, the UK, Germany and the USA. Here’s a brief list of frontrunning laws from these countries.
Singapore prohibits front running as per “Insider Trading Laws” of section 219 of the SFA. It carries fine up to $250,000 and prison up to 7 years.
In 2019, three frontrunners were jailed with 36 months, 30 months and 20 months in prison.
Japan SESC has fined two instances of frontrunning with fine of $650 and $1000 approx. in both cases. There does not appear to be any concrete law on frontrunning in Japan.
In India, under the SEBI Act, the fine can be up to $3.1 Million or three times the profits made, whichever is higher.
The UK had earlier punished frontrunning instances with high penalties and permanent bans. It was outlawed during the 1980s when it was banned as per Part 5 of the Companies Act. Since 2000, the FSA is tasked to enforce the law.
Germany bans frontrunning under the 1994 German Securities Trading Act. The maximum fine is up to $250,000 but for most crimes it carries a maximum of $50,000.
USA Regulates frontrunning as per SEC Rule 17(j)-1. It is regulated under trade manipulation. The laws were further updated in 2013 Insider Trading Policy.
The penalties can reach up to 20 years in prison and carries up to 5 Million in fine.
Frontrunning is prohibited throughout the world. It discourages true traders and helps people make money with privilege information. Frontrunning is heavily enforced in many countries like USA, India, UK, etc. However, due to the lack of concrete laws in several fields such as cryptocurrency and DeFi trading, it is rarely enforced.
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