On the front foot

20 July 2004 By Chris Hughes

Marathon, for example, recently warned its clients that some brokers seem to leak their orders so hedge funds can frontrun the trades. The FSA already fines brokers for trading ahead of client orders. It should treat the same behaviour by hedge funds equally seriously.

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Some fund managers are becoming increasingly concerned about conflicts of interest in equity trading, in particular the leakage of their orders to a broker's hedge fund clients. One firm, Marathon Asset Management, told clients in a recent newsletter that the intimacy of relationships between hedge funds and brokers could give rise to new conflicts of interest, comparable to those between research and corporate finance.

The UK Financial Services Authority has started to clamp down on the abuse of order information. In April it fined Deutsche Bank after its Morgan Grenfell subsidiary purchased stocks that a client was intending to buy through a programme trade. The FSA said the bank's actions breached its duty not to disadvantage a client, and contravened the regulator's rules on conflicts of interest.

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