Market makers front-ran LTCM’s futures purchases by reading pit activity

Evidence

A remarkable analysis by Cai (2003) of Board of Trade data obtained from the Commodity Futures Trading Commission via the Freedom of Information Act shows that market makers seem (perfectly legitimately) to have anticipated such purchases, buying futures a minute or two before Bear Stearns did, alerted perhaps by the arrival in the pit of brokers for Bear Stearns or by the behavior of traders acting on the firm’s behalf” LTCM kept its counterparties and the Federal Reserve informed of the continuing deterioration of its financial position. — Donald MacKenzie, An Engine, Not a Camera, 1070

Categorization

• QUESTION: Whether this constitutes legal front-running is a live regulatory question — worth chasing the Cai analysis details.
• XREF: connects to: Traders disclose order flow through deals to read the market as it forms — Karin Knorr Cetina & Urs Bruegger, Global Microstructures: The Virtual…, 140

Broader Connections

• Traders disclose order flow through deals to read the market as it forms #expands (0.72) — Karin Knorr Cetina & Urs Bruegger, Global Microstructures, 140