The Securities Exchange Board of India (SEBI) has intensified investigations against stock brokers suspected of front-running, reported BusinessLine.
The companies have been accused of buying stocks before recommending them to the public and selling the stocks afterwards. Additionally, sources revealed that the companies and their analysts have not been doing the mandatory bookkeeping of the records of their public recommendations.
Show cause notices in possession of BusinessLine reveal that several stockbrokers, including Trustline Securities (TLS), are currently being investigated by the regulatory authority.
TLS and its research analysts, in addition to not keeping up with the mandatory records of recommendations, were often dealing in securities that were being promoted. The broker and its analysts would make recommendations on social media platforms and TV channels in stocks that they already had positions in. SEBI found that they traded in the promoted securities within 30 days before and five days after making the recommendations.
While legal experts believe that the case would come under the definition of front-running, under the ambit of the Prevention of Fraudulent and Unfair Trading Practices (PFUTP) Act, SEBI is not likely to go for that route.
The regulatory authority is instead expected to go for the accused under violations of research analyst norms. Other legal experts have stated that the case could even be one for price and volume manipulation.
Front-running, also called tailgating, is an illegal security purchasing practice, where an individual uses advance knowledge of market moving events or insider information that hasn't been revealed to make trades that would result in profits. A classic example of front-running is when a broker purchases securities ahead of a large order from a big client, and then sells them afterwards for a neat profit due to the expected price increase.
(Edited by : Shoma Bhattacharjee)