Topic- Front Running and its Regulation in India

Introduction

Front running is an illegal act of buying or selling securities based on non-public information
regarding a substantial future transaction likely to influence the price. It includes entering into
options or futures contracts before an imminent transaction while anticipating the fluctuation in
the price after the information will become public. This term has been defined in the SEBI
Circular dated 25th May 2012. Regulation 4(2)(q) of SEBI (Prohibition of Fraudulent and Unfair
Trade Practices Relating to Securities Market) Regulations, 2003 classifies front running as a
manipulative, fraudulent and unfair trade practice. Furthermore, Sec. 12A(e) of the SEBI Act
also lays down that a person shall not deal in securities directly or indirectly while possessing
non-public information. Front running may take place in several ways through intermediaries as
well as non-intermediaries. Orders can be placed in trenches and all such tranches placed before
the last tranche1 of the Big Client will classify as front running transactions. This practice
involves illegal usage of confidential information given to an intermediary resultantly amounting
to unfair leverage. This article critically analyzes the extant legal provisions as well as judicial
decisions dealing with front running by non-intermediaries and juxtaposes it with those in the
other jurisdictions. The author also attempts to provide constructive suggestions in order to
impose effective strictures on this manipulative practice.

Research Question

● What is the existing legal framework with respect to Front Running in India?
● What are the trends and Judicial pronouncement with respect to Front Running?
● How Front-Running Defined by Regulators across Different Jurisdictions?

Research Methodology
● Research Strategy- A numerous academic researches have been taken into account for
coming to a conclusion.

1
https://cbcl.nliu.ac.in/capital-markets-and-securities-law/front-running-a-non-intermediarys-accountability-
for-the-ill-gotten-gains/blank
 ● Limitations of Research - The research is limited to already present jurisprudence on the
topic and adds the viewpoint of the author based on the judgments in the context of India,
though judgments from other countries have been taken but they have been presented as a
suggestive remark rather than a more binding conclusion.

Hypothesis

There is a requirement for a much more comprehensive definition of front running needed for
crystallizing all the provisions relating to front running by non-intermediaries. Along with the
general definition, a few exceptions also need to be carved out expressly for elimination,
protecting the interest of all the concerned persons in a company.

Aims and Objectives

The aim and object of the researcher is to know if front running is different from insider trading
and to know its different kinds. The object of this research is also to know the key elements for
classification of trading as front running.

Mode of Citation

The researcher has adopted a uniform mode of citation throughout the research project.