A Follow-up on Front-Running

Paul Solman: In the wake of considerable reaction to last night’s Goldman piece in what my mother derisively called “cyberspace,” a brief anecdote, before all is forgotten in the wake of tonight’s Goldman II. Forgive me if I’ve mentioned this story before, but it seems especially relevant in view of Goldman I’s discussion of “front-running” one’s clients.

In talking to a longtime Wall Streeter recently, off the record, the subject of “front-running” came up. He told of a top management meeting at another Wall Street firm, years ago, in which one of the firm’s jefes suggested getting rid of the elaborate, and very expensive, business of trading for customers — for small and ever-decreasing commissions. The firm’s money was mostly made trading for its own account, it was pointed out, based on its insider’s “feel for the market.”

The proposal was taken very seriously, said my source, until someone blurted out words to the effect of these: “But we make money by front-running our customers. How can we do that if we have no more customers?” The proposal, said my source, was tabled.