- May 7, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Section: Capital Market
Axis Asset Management Company, which manages assets worth Rs 259,818 crore, suspended two fund managers on Friday for various irregularities, including front-running the AMC’s transactions on their personal accounts.
Front running involves purchasing a stock based on advance non-public information regarding an expected large transaction that will affect the price of the share.
Example-Front-running has been very common in mutual fund houses and foreign portfolio investors. When mutual funds make a big order, some fund managers buy the same shares in their personal accounts before executing the MFs’ order. When MFs purchase in huge quantities, the price of the share is expected to go up.
Law-Sebi has categorized front running as a form of market manipulation and insider trading because a person who commits a front running activity expects security’s price movements based on the non-public information.
Insider trading :
Insider trading involves trading in a public company’s stock by someone who has non-public, material information about that stock for any reason. Material non-public information is any information that could substantially impact an investor’s decision to buy or sell the security that has not been made available to the public. Insider trading can be either illegal or legal depending on when the insider makes the trade
Insider trading in India is prohibited by the Companies Act, 2013 and the SEBI Act, 1992. SEBI has formed the SEBI (Prohibition of Insider Trading) Regulations, 2015 which prescribe the rules of prohibition and restriction of Insider Trading in India.
The Regulations provide that the communication or dissemination of any confidential information, by an insider, is prohibited.
If any person contravenes with any provision of the SEBI Regulations, it amounts to an offence under the Act and is punishable with imprisonment up to 10 years or a fine up to 25 crores, whichever is higher. Under the SEBI Regulations, the adjudicating officer may impose a penalty on any person who contravenes with the provisions of the regulations except for the offence committed under section 24 of the Act. SEBI also has the power to investigate the case of Insider Trading and related matters.