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- SEBI recently barred 21 entities in the Axis mutual fund front-running case.
About
- Front running is the illegal practice of purchasing a security based on advanced private information so as to benefit from the subsequent price movement.
- Example:
- Every mutual fund has fund managers who make decisions about buying stocks.
- Once the fund manager decides what he wants to buy or sell, he informs his dealer, whose responsibility it is then to execute the trades on behalf of the fund house.
- If the dealer wants to profit, he enters the market minutes before he places the order of the fund house. Mutual funds usually place large orders in the stock market. Such orders can sharply move the price of a stock.
- Here, the dealer buys or sells the stock minutes before a mutual fund places its trades, buying or selling the stock.
- The idea is to profit from the big investor’s moves, either by buying or selling shares.
- Differences with Insider Trading
- Insider trading is when a company insider, an official, employee or a senior executive, takes advantage of unpublished price-sensitive information (UPSI) to trade in the company’s stock and make profits from such transactions.
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Securities and Exchange Board of India (SEBI)
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Source:TH
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