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.
{{/usCountry}}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.
{{/usCountry}}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)