Stocks

SEBI cracks down on brokers suspected of front-running

PALAK SHAH Mumbai | Updated on October 01, 2021

SEBI is probing several brokers including Delhi-based Trustline Securities and its research analysts for buying and selling shares before and after recommending them to the public   -  PAUL NORONHA

Trading in shares recommended, limited or no record are key violations

Market regulator SEBI is stepping up probe of brokers it suspects to be front-running in the stock market.

According to sources close to the ongoing investigations, several brokers have been found not keeping even a record of the public recommendations they make, as mandated.

Show-cause notices (SCN) in possession of BusinessLine reveal that SEBI is currently probing several brokers including Delhi-based Trustline Securities (TLS) and its research analysts for buying and selling shares before and after recommending them to the public.

This classifies as front-running, legal experts say.

The many violations

According to the SCN, two senior research analysts of TLS made stock recommendations on some TV channels and social media platforms in the very stocks they were dealing in.

SEBI also found instances of TLS dealing in the derivatives of shares it and its brokers had recommended. SEBI also found that TLS or its research analysts under scanner did not maintain a record of the stock recommendations they had made in public domain, which is mandated by law.

SEBI found that the analysts and TLS traded in shares and derivatives within 30 days before and five days after making recommendations.

SEBI also found that TLS’s client account opening forms lacked all the necessary information.

Also, the broker lacked a complaint redress system for the clients.

Different perspective

Legal experts say that in most such instances SEBI looks at them through the lens of violation of research analyst norms, while it should be probing them under the stringent Prevention of Fraudulent and Unfair Trading Practices (PFUTP) Act that accounts for front running.

“A key reason why detection of front-running cases is low is that SEBI looks at various such instances with different angles.

“When buying and selling are done a few days before or after the recommendations are given, it fits the bill of front-running or even price and volume manipulation,” a legal expert said.

Limited probes

Last year, 53 cases of various instances of fraud were detected by SEBI but it took up only one case of front-running for investigation and completed the probe in just two from the previous year, its annual report shows.

SEBI has mandated that all research analysts have to pass a test of the National Institute of Securities Market, which is promoted and run by the regulator.

Sources close to the market regulator say that the modus operandi of most brokers and analysts probed by SEBI is similar to that observed in the TLS case.

Published on September 30, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like