How some blockchains enable front-running

This article was originally published in Financial Times on May 26, 2026.

Regulators need to tackle the issue and address the cost to investors of excessive transparency

Financial markets are beginning to move “on-chain”. I’m a strong champion of this shift towards using blockchains, as it promises to expand access, improve market infrastructure and enable more efficient movement of capital.

Policymakers around the world are engaging on this issue. As these efforts advance, details matter. We have an opportunity to build a more resilient system, but that advantage will erode if core market principles are not preserved from the start. Two issues deserve particular attention. First, the ability to front-run orders to buy and sell assets by controlling sequencing of transactions. Second, the cost to investors of information leakage on orders caused by unnecessary transparency.

On many blockchains — distributed digital ledgers used to record and settle transactions — activity is processed in batches known as blocks, and validators or block builders determine the order in which trades within them are matched. Those roles are necessary to process and secure the network. The risk arises when pending transactions are visible before execution and can be reordered.

This characteristic is often called Maximal Extractable Value, or MEV — the ability to profit by controlling or influencing the order of transactions. Not all MEV is the same. Some reflects arbitrage, or trading across venues to align prices when they diverge. But when profits depend on controlling transaction order — trading ahead of or around visible orders — the activity is no longer about price alignment. It is front-running.

As the Securities and Exchange Commission clarified in a footnote to a statement last month: “altered sequencing of transactions may be abused to the detriment of other users in certain so-called MEV strategies (eg, in front running).”

Take an example where an investment manager wants to rapidly buy a large position in a stock. On a chain with MEV, a block builder can see that order, buy the shares first and then sell them back at a higher price. The investor pays more — not because the market moved, but because transaction sequencing was exploited.

This activity is at least partially visible in public data, which suggests observable MEV extraction exceeds hundreds of millions of dollars. If assets like US equities move to chains with these features, the costs would scale significantly.

In well-functioning markets, that conduct is prohibited. Traditional exchanges enforce explicit rules on matching orders based on price and time, which are designed to ensure fair execution and prevent front-running. Firms can compete to be first, but they cannot change the order in which transactions are processed.

High-frequency trading is sometimes cited as an analogue to MEV. It isn’t. In traditional markets, firms compete on speed within fixed rules: arriving first sets priority, and that order cannot be changed. That competition tightens spreads and keeps prices aligned across venues. The distinction is simple: one reduces end-user execution costs, the other increases them.

Another key issue is information leakage on some chains. Capital markets require transparency for appropriate parties, such as regulators and transaction participants, without exposing economically sensitive information to the entire market in real time.

Consider a long-only manager unwinding a concentrated position in a small-cap stock on behalf of retirement investors. If that activity is visible in real time, other market participants can anticipate the remaining selling and trade ahead of it, pushing the price lower. The seller is forced to execute into a falling market, and the resulting costs are borne by the end investor.

Some blockchains enable MEV and excessive information leakage; others are designed to prevent them. Regulators should make clear that blockchain selection is a market structure decision with direct consequences for both investors and issuers.

These outcomes are not inevitable features of blockchain-based markets. They can be addressed by tokenising assets on blockchains that provide appropriate levels of privacy, limit pre-trade visibility, enforce clear ordering rules and remove discretion where it can be exploited. Regulators need to enforce existing rules prohibiting front-running, regardless of where that activity occurs.

We have an opportunity to improve how markets function while empowering investors in new, important ways. But success requires deliberate choices about the infrastructure we build on and the blockchains we entrust with our capital markets.