Mint Explainer: Front-running cases and Sebi's fight against market manipulation
Subscribe to enjoy similar stories. Front-running, a practice that undermines the fairness of financial markets, has come under the spotlight, with the Securities and Exchange Board of India (Sebi) tightening its grip on brokerage firms that have access to information on stock trades and other financial assets. Cases involving prominent fund houses like Axis Mutual Fund and Quant Mutual Fund have grabbed headlines recently for their links to these cases.
The regulator, which is using cutting-edge technology and has expanded surveillance, saw its investigations triple to 83 in the last fiscal year compared to FY23. Mint explains Sebi's growing efforts to clamp down on front-running, and how it affects retail investors, and the way ahead. Front-running, also known as tailgating, is a form of market manipulation.
It is the trading in a stock or financial instrument by a broker, dealer or employee who has inside information about a future transaction that would affect its price. The intermediary works on the basis of information that is not public and would affect the price of securities in the market. It poses a serious risk to retail investors, particularly those without access to insider information.
When front runners use confidential data to their advantage, they can artificially drive up prices, leaving everyday investors to buy stocks or securities at inflated rates. This creates an uneven playing field, often causing individual investors to overpay for their investments. Also Read: Surviving the front-running storm: An investor's handbook Additionally, front-running undermines trust in financial markets.
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