How Do CEXs Typically Use Trade Surveillance to Detect Front-Running?

CEXs employ sophisticated trade surveillance systems that monitor all trading activity in real-time. These systems use algorithms to detect patterns indicative of front-running, such as an employee's personal trade immediately preceding a large, impactful client order.

The surveillance tools look for correlations between non-public order book information and proprietary trading accounts. Once a suspicious pattern is flagged, it is manually investigated to determine if an anti-market manipulation rule was violated.