Market regulator Securities and Exchange Board of India (SEBI) would be reviewing regulations regarding fraudulent and unfair trade practices. The comment follows a recent case on the issue, where the Securities Appellate Tribunal (SAT) set aside a SEBI order, stating present rules do not clearly define “front-running”.
Front-running is an illegal practice where a stockbroker executes orders on a security for his own account, taking advantage of having advance knowledge of pending orders. Front-runners use confidential information for buying or selling securities ahead of a large order with the objective of benefiting from price movements.
“Front-running is an offence and we need to make a lot of improvements. Regulations on insider-trading are different, and we must take a serious re-look at regulations,” said UK Sinha, SEBI chairman, addressing reporters at a Mumbai workshop for journalists by SEBI on Saturday.
Earlier this month, the SAT set aside a SEBI order penalising three persons for front-running — the first case involving individuals — which raised que-stions on the efficacy of the law.
The SEBI had barred the trio from the market, and imposed a fine of R1.13 crore on two of them. They had allegedly made a profit of R1.56 crore from 557 synchronised trades on the NSE and 50 on the BSE between January 2007 and March 2009.
But, setting aside the SEBI order, SAT said the existing prohibition of fraudulent and unfair trade practises (FUTP) regulations of 2003 do not clearly define “front-running”, and even if a transaction could be construed as front running, the regulations applied to market intermediaries and not individuals.
(With inputs from agencies)