Front-running of FPI trades - SEBI raids brokers in Kolkata, Mumbai

Market regulator SEBI (Securities and Exchange Board of India) has raided six entities connected to a large market operator for front-running the trades of foreign portfolio investors (FPIs). Among those raided by SEBI, five brokers are from Kolkata and one was from Mumbai, sources told Zee Business. The raids were conducted last week. The market operator who SEBI believes could be behind the entities has faced severe action from the regulator in the past and is known to use benami fronts to trade in the market, the sources said.

It is learned that SEBI had information and prima facie evidence that these brokers and entities close to them were front-running the trade of large foreign portfolio investors (FPIs), the sources said.

Front running is nothing but trading on advanced non-public price-sensitive information. Advanced knowledge of big buy-sell orders of institutions is always privileged information since the sheer quantity of trades of such institutions can move prices. Front running is the practice of entering into an equity (stock) trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge pending transactions that will influence the price of the underlying security.

The entities that SEBI raided were known to trade on advanced knowledge of the FPI trades, the sources said.

An email query was sent to SEBI & their response is awaited. Zee Business will incorporate the response once it is received.