What Is the Regulatory Risk of a CEX Failing to Prevent Employee Front-Running?

The regulatory risk is significant, as employee front-running is a clear violation of securities and commodities laws, constituting illegal insider trading and market manipulation. A CEX failing to prevent this can face massive fines, license revocation, and criminal charges for the employees and potentially the executives.

Regulators demand robust internal surveillance and compliance systems, often referred to as "Chinese Walls," to separate employees with privileged information from trading operations.