Front-running is a serious ethical and legal breach in the stock market. It occurs when a broker or someone with inside knowledge of an impending large order buys or sells the same security before the large order is executed. This allows them to profit from the price movement caused by the large order.
SEBI Cracks Down on Front-Running Scheme
Recently, SEBI (Securities and Exchange Board of India) cracked down on a front-running operation involving an equity dealer at PNB MetLife and eight other entities. This scheme, running for over three years (from January 2021 to July 2024), generated illegal profits of ₹21.16 crore. By exploiting non-public trade information, they violated SEBI’s PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) regulations and the SEBI Act. SEBI has now banned these individuals from the securities market.
The Impact of Front-Running on Market Integrity
This case highlights the importance of market integrity and SEBI’s role in policing such fraudulent activities. Front-running undermines fair trading practices and erodes investor confidence. It’s a stark reminder that insider information should never be used for personal gain.