Front running: Sebi likely to soon initiate stringent action

What is the News?

Recently, there was a case of mutual fund irregularities, including front-running the AMC’s transactions. The Securities and Exchange Board of India (Sebi) is expected to take harsh action, which might include action against top fund house employees.

What is Front running?

Front-running is a dubious market practice in which a dealer, trader or employee gets wind of a big order for buying or selling shares that will be placed by a fund or big investor and get ‘in front’ of the trade.

Large orders usually move a stock’s price. By buying shares just before the big order hits the market and selling them once the price moves up, the front-runner pockets illegal gains from his advanced knowledge.

A reverse strategy is used with sell trades to bring down the selling prices.

What are the concerns associated with front running?

Front-running by insiders can adversely impact investors in a fund by bidding up the prices they get to buy stocks or hammering down the prices at which they get to sell.

What are the regulations against front running?

SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 clearly define front-running and characterises it as a fraudulent and unfair practice. SEBI has invoked this section many times to pass orders against front-runners.

Source: The post is based on the article “Front running: Sebi likely to soon initiate stringent action” published in Indian Express on 23rd May 2022.