Front-Running Case: Sebi Refuses To Lift Securities Market ban Imposed On 11 Entities

Front-Running Case: Sebi Refuses To Lift Securities Market ban Imposed On 11 Entities

SEBI maintains the market ban on 11 entities amid an ongoing detailed investigation into a front-running case. The prohibition follows allegations of illegal trading based on insider information, with Sebi reinforcing its initial findings and confirming the interim order. The entities are required to secure illegal gains in an escrow account as the inquiry continues.

Sebi on Wednesday refused to lift the securities market ban imposed on 11 entities in a 'front-running' case and said a detailed investigation is ongoing in the matter.

Front-running refers to an illegal practice in the stock market where an entity trades based on advanced information from a broker or analyst before the information has been made available to its clients.

"I find that the submissions of the notices (11 entities)are insufficient to refute the prima facie conclusions drawn in the interim order. Instead, post hearing and based on materials brought before me, the prime facie conclusions have been further reinforced," Sebi's Whole Time Member Ananth Narayan G said.

Further, he said that "a detailed investigation is ongoing in the present matter". Consequently, he does not see any reason or grounds to differ from the prima facie findings in the interim order and they stand confirmed.

Sebi confirmed the directions of the interim order issued against 11 entities on December 26, 2022. Further, it clarified that the restraint imposed on them from buying, selling or dealing in securities either directly or indirectly, in any manner whatsoever, will continue until further orders, according to a confirmatory order.

Sebi, through its interim order, barred 11 entities from the securities markets till further orders in a case of front-running activity by dealer Parekh and connected entities.

Also, they were directed to open an escrow account and deposit the impounded illegal gains of Rs 1.25 crore made by them.

The order came after Securities and Exchange Board of India (Sebi) conducted a preliminary examination of the trading activity of Parekh and his connected entities for the period from April 1, 2021 to December 31, 2021.

Parekh and his connected entities were suspected to be front-running the trades of Paresh N Bhagat (Big Client), who was the director of Mangal Keshav Financial, in the equity derivative segment during the examination period.

It was prima facie noted that Parekh, being the dealer of the Big Client was prima facie privy to the information pertaining to the Big Client's impending orders.

Sebi, prima facie, found that Parekh passed on the non-public information of the Big Client to Nagendra S Dubey, who in turn had passed it on to Chirag Atul Pithadia. Further, several of Big Client's trades were being front-run by the remaining eight entities in the derivative segment.

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