Wall Street’s tarnished image is taking another hit as the SEC takes a look at whether Merrill Lynch put its own trades ahead of those from clients, specifically mutual-fund operator Fidelity Investments, a practice known as front-running, reports the Wall Street Journal. The probe is the newest development in a broader look at improper information sharing on Wall Street.
Front-running gives traders an edge because large institutional trades can affect stock prices. The probe targets trades made from 2002 to 2005; several traders being looked at have left the firm. Merrill Lynch, already under investigation for how it valued bundled subprime mortgage securities, will announce its fourth quarter results—expected to include substantial further writedowns—this week.