Sebi to review front-running regulations to curb fraud
Patel further told his cousins to sell when Passport India actually executed the buy trades. Sebi alleged that Patel, along with his cousins, made a profit of R1.56 crore. While Sebi barred Patel from the securities market, his cousins were directed to deposit the profits to the tune of Rs 1.03 crore. Sebi found the individuals guilty, violating the provisions of Regulation 3(a), (b), (c) and (d) of Fraudulent and Unfair Trade Practices (FUTP) regulations and imposed monetary penalty under Section 15HA.
The SAT, however, overruled the order saying that the existing prohibition of FUTP regulations of 2003 do not clearly define “front-running”, and even if a particular fraudulent transaction could be construed as front-running, the regulations applied only to market intermediaries and not individuals.
The Sebi chairman said that the issue arose as the regulations governing insider trading were amended a few years back. “Earlier, the regulations were different. But now the regulations are that even if you are in the know of that information, whether we are able to establish whether you have used that information or not is immaterial. The very fact that you are possessing that information is enough for us. Given this particular example, we will need to have a serious look at our regulation,” he said.
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