Front Running

In News: Axis Asset Management Company, which manages assets worth Rs 259,818 crore, suspended two fund managers for various irregularities, including front-running the AMC’s transactions on their personal accounts.

• Front-running, which is illegal in India, involves purchasing a stock based on advance non-public information regarding an expected large transaction that will affect the price of the share.
• When mutual funds make a big order, some fund managers buy the same shares in their personal accounts before executing the MFs’ order. When MFs purchase in huge quantities, the price of the share is expected to go up.
• SEBI has categorised front running as a form of market manipulation and insider trading because a person who commits a front running activity expects security’s price movements based on the non-public information.

Securities and Exchange Board of India (SEBI)

• SEBI is a statutory body established in 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
• The basic functions of the Securities and Exchange Board of India is to protect the interests of investors in securities and to promote and regulate the securities market.

Structure

• SEBI Board consists of a Chairman and several other whole time and part time members.
• A Securities Appellate Tribunal (SAT) has been constituted to protect the interest of entities that feel aggrieved by SEBI’s decision.

Powers and Functions of SEBI

• SEBI is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.

It functions to fulfill the requirements of three categories –

• Issuers – By providing a marketplace in which the issuers can increase their finance
• Investors – By ensuring safety and supply of precise and accurate information
• Intermediaries – By enabling a competitive professional market for intermediaries
• By Securities Laws (Amendment) Act, 2014, SEBI is now able to regulate any money pooling scheme worth Rs. 100 cr. or more and attach assets in cases of non-compliance.
• SEBI Chairman has the authority to order “search and seizure operations”.

Securities Appellate Tribunal (SAT)

• SAT is a statutory body established under the provisions of the Securities and Exchange Board of India Act, 1992.
• SAT consists of a Presiding Officer and two other Members.
• It has the same powers as vested in a civil court. Further, if any person feels aggrieved by SAT’s decision or order can appeal to the Supreme Court.

Previous Year Questions (PYQs)

Q.1) Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in the news?

1. The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
2. The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
3. The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.
4. The incentive given by the Government, to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards

Source: Indian Express