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Front running not a crime, if committed by non-intermediaries - SAT

Perhaps SEBI has taken its original mandate of protecting individual investors to a ridiculous extent.

A fantastic situation has come up wherein the Securities Appellate Tribunal (SAT) while acknowledging that even if a crime has been committed, nothing can be done as the law has no provision to prosecute individuals.

The fact of the case was that an employee of an FII who was its portfolio manager apparently used to inform his cousins before executing trades on behalf of the FII. The cousins then used to buy the stocks before the FII's transaction and similarly sell before the FII came to sell. This practice is known as 'Front running' and is blatantly illegal as someone is using confidential information for personal gains.

Using this method these clever crooks apparently made profit of crores of rupees. The transaction volume etc. being high, came under SEBI scanner who tracked them down and imposed heavy penalties  The matter on appeal thus landed before the SAT.


The laws laid done in the act allegedly violated is SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”).

Going through the various documents and arguments of the SEBI and the accused, the SAT came to the conclusion that even if the accused has committed the crime, nothing can be done as the law very specifically applies to market intermediaries and not individuals. Incidentally, the same law earlier applied to any person and under the earlier law, these acts of the accused would clearly had been criminal and they could have been penalised. But not now!! Why was it changed in such a strange way?


Appeal No. 216 of 2011
Date of Decision : 09.11.2012

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