Regulator Sebi has barred a number of individuals and entities from the capital market after it unearthed a major case of front running by some dealers of Reliance Securities Ltd and their connected entities by using their prior access to sell and buy orders by Tata Absolute Return Fund.
The regulator examined KYC details, call data records, social media posts and Facebook connections of the suspected individuals and entities to probe relationships between various entities under its scanner in the case, after Sebi's own internal surveillance system generated front running alerts against one particular individual, Meena Ramnilal Vira in December 2019 and January 2020.
These alerts referred to suspected front running of trades by Tata Absolute Return Fund, a scheme of Tata Alternative Investment Fund, while some more front running alerts were generated against some other entities suspected to be front running the trades of the same big client.
After Sebi further probed the matter it found that the majority of the orders of the big client were being placed through Reliance Securities Ltd and these orders were being placed through four dealers at the brokerage firm.
Of these, three dealers were found to be connected with 10 other entities who were prima facie found to have traded depending on the impending orders of the Tata fund.
Sebi said these three dealers --Harshal Ramnik Vira, Bhavesh Gandhi and Abhijeet Nandkumar Jain -- were privy to the non public information to impending orders of Big client. Besides, connected entities too had access to such information.
In its interim order, Sebi said the trading pattern showed deployment of BBS (Buy-Buy-Sell) or SSB (Sell-Sell-Buy) strategies -- two typical modes of front running under which the front runners place buy or sell orders just before the final buy or sell order of the big client and then place sell or buy orders, respectively, after the price of the stock has risen or fallen following execution of the final order by the big client.
Sebi said dealers and connected entities in nexus with registered owners of trading accounts of front-running have placed orders of the first leg of their intra-day trade just prior to the order /last tranche of the order of big client on a consistent basis (in terms of number of days and number of securities).
In order to generate substantial proceeds, these entities have either followed BBS pattern or SSB pattern of executing the trades around the orders of Big Client, the regulator said in it 78-page interim order dated August 7.
Accordingly, Sebi has barred a total of 27 entities including Vira, Gandhi and Jain from the capital markets for violation of its PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms till further directions.
All the entities have been directed not to dispose of any assets,whether immovable or movable except with the prior permission of Sebi.
The directions will take effect immediately and will be in force until further orders.
