Front-running Scam | Economic Terms in News | SEBI vs Ketan Parekh for explained for UPSC by Mrunal

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Timestamp
00:00 intro & theory
00:48 front-running in real life
02:03 FDI vs FPI
02:44 Ketan Parekh’s scam 2024
03:40 Pump & Dump in 2001
04:43 glorification of Harshad Mehta
05:24 Unacademy New Year offer
06:11 topic relevant in UPSC
07:19 Depending of the capital market
08:05 Aadhar card in crime detection
08:29 Ketan Parekh & Lawrence Bishnoi

In this video, renowned UPSC Educator Dr. Mrunal Patel will explain the an economy concept / sharemarket term ‘Front-running scam’ for benefit of job aspirants in India who are preparing for various competitive exams such as UPSC, SSC-CGL, State Services (StatePSC), Banking, IBPS, RBI, CAPF, CDS, etc.”

How Does Front-Running Work, and What Was Ketan Parekh's Role?

Front-running is a fraudulent practice where traders exploit advance knowledge of large client orders for personal profit. In a notable case, India’s Securities and Exchange Board (Sebi) uncovered a front-running scheme involving Ketan Parekh, a notorious stock market manipulator, and Singapore-based trader Rohit Salgaocar. This scam utilized non-public information (NPI) from a major US-based foreign portfolio investor (FPI), referred to as the “Big Client.”

How Did the Scam Unfold?
Between January 2021 and June 2023, Parekh and Salgaocar orchestrated manipulative trades using insider information about the Big Client’s stock transactions. Despite a 14-year trading ban following his role in the 2001 stock market crash, Parekh coordinated trades through six entities acting as intermediaries. Salgaocar, with referral agreements at Nuvama Wealth Management and Motilal Oswal Financial Services, provided access to the Big Client’s confidential trade data.

The operation came to light when Sebi observed unusual trading patterns linked to the Big Client. Following a three-day search across 17 locations in June 2023, Sebi gathered substantial electronic and documentary evidence to build its case.

What Is Front-Running?
Front-running occurs when brokers, asset managers, or insiders use confidential trade data to profit from anticipated price movements caused by large client orders. For instance, a broker aware of a client’s bulk purchase might buy shares at a lower price, selling them for profit after the client’s order raises the stock value. This practice undermines market integrity, erodes investor trust, and is illegal in most jurisdictions.

How Does Sebi Detect Front-Running?
Sebi employs advanced tools like algorithms, data analytics, and communication surveillance to identify illicit activities. Although perpetrators often use mule accounts to obscure links, Sebi uncovers these connections through digital trails, including emails and messaging apps.

Other Front-Running Cases
The Ketan Parekh case highlights Sebi’s broader crackdown on financial fraud. In 2023, Axis Mutual Fund manager Viresh Joshi and others were barred for earning ₹30.55 crore through front-running. Similar allegations surfaced against Quant Mutual Fund. Additional investigations involve NNM Securities Ltd, CHL Stocks Concepts, and firms like Wockhardt and Bank of India AXA Mutual Fund.

Sebi’s Preventive Measures
To combat front-running, Sebi has introduced regulatory amendments, mandating the recording of all dealer and fund manager communications during market hours, except for face-to-face interactions. Asset management companies (AMCs) must also implement institutional mechanisms to prevent such practices. These measures, approved in April 2024, aim to enhance accountability, safeguard investor interests, and uphold market integrity.