Mutual Fund: Let’s Understand the Front-running
Currently, SEBI is probing a front-running case involving the Quant Mutual Fund.
Let’s understand the meaning term Front-running in simple language.
Front-running is also known as Tailgating. It basically means insiders/brokers trading in advance on the basis of hidden knowledge of significant pending transactions that will impact the price of underlying securities.
For Example – Mr A, a broker receives a market order from Mr B for 100000 Shares of XYZ Ltd. Currently, the price of the share of XYZ Ltd is Rs. 100 per share.
Mr A knew that this order from Mr B would influence the price of the share of XYZ Ltd.
Mr A bought, let’s say 100 stocks in his personal A/c and then placed the order for Mr B. The share price of XYZ Ltd rose to Rs. 102 and Mr A sold his shares and earned a profit of Rs. 200.
This practice is known as Front-running and it is illegal and unethical as the per rules of Securities Exchange Board of India (SEBI).
