Introduction to Front Running as per Indian Context-

Front Running is an illegal practice of trading in the stocks based on non- published information in regard to an expected large stocks transaction which will be affecting the price of that share. It is an unethical practice as it is usually committed by the person who takes undue advantage of the information of their clients order or gives the information to another person/ entity and as per the information the unethical practice takes place.

The Securities Exchange Board of India (SEBI) has explicitly defined Front Running in Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market Regulations, 2003 under Sec. 4 (2) (q)-

“An intermediary buying or selling securities in advance of a substantial client order or whereby a future or option position is taken about an impending transaction in the same or related futures or options contract.”

If an entity/ person is proved to have committed the offence of Front Running then-

A maximum penalty of INR 25 Crs. or three times of profits generated from such practice can be imposed under the SEBI Act., along with this, SEBI is also vested with the power to institute other civil suits under the SEBI (Intermediaries) Regulations, 2008 and criminal proceedings under Sec. 24 of the SEBI Act.

The practice of Front Running had become a very common sight in past and SEBI had acted very strictly and effectively to deal with the issue, reason being it has very negative and unhealthy impact in the market, which are as follows-

  • Creation of unethical profit by the offenders.
  • Profit cutting of the investors as their order knowledge being used to yield unethical profits.
  • Increase in the number of Inter- Dealer Orders.
  • Creation of Artificial Boom of Share Price.

Front Running sounds very familiar to Insider Trading. There is a very thin line that differs both of them- Insider Trading is trading in stocks based on a non- published information in regard to a company’s business affairs and Front Running is an unethical practice in which profit is made by trading in stocks based on information in regard to large stocks transactions.

The Supreme Court of India, in the case of- Anandkumar Baldevi Patel v. S.E.B.I (2019) had defined that Front Running is of 3 types and also provide the definitions for all the three types, which are-

1. TIPPEE TRADING- Trading by third party after being tipped by a broker/ entity possessing the knowledge of large stock order.

2. SELF FRONT RUNNING- Trading of stocks by the owners of blocks by indulging into Hedging.

3. TRADING AHEAD- Trading of stocks by the broker who takes undue advantage of the knowledge of his customer’s orders.


Axis Bank AMF is the asset management wing of the AXIS Bank, collectively it manages investments worth USD 37 Billion. It is India’s 7th largest fund house, which manages funds of very high profile people too. The case came in the media when some series of news articles were published which stated that a dealer of fund house was seen driving Lamborghini and many other articles were published regarding disproportionate wealth of some of the dealers and employees of the fund house, but no response was given from the fund house and chose to remain silent.

Meanwhile SEBI was getting many alerts regarding potential front running of trade by the fund house through its internal surveillance alert system under the National Stock Exchange. Based on the alerts SEBI initiated probe against the fund house and due to this AMF also had to unwillingly initiate probe and damage control-

On the evening of May 4th, 2022, the two fund managers, namely- Mr. Viresh Joshi and Mr. Deepak Aggarwal found out that their Id’s by which they used to do the dealings had been suspended. Within the next few days both of them were stripped off from their role and a suo-motto investigation with the help of external reputed advisors was initiated by the fund house against the two.

The fund house in a statement told that investigation was in process against them for committing potential irregularities, since the month of February. But the important thing to think is that there was no information about this mentioned in any public domain about the ongoing investigation and the two were only suspended in the month of May when the news was getting spread in regard to potential front running by the fund managers of AMF.

Front Running With Context To Axis Bank's AMF Case

Shortly after this, the Bloomberg Id of the CEO of the fund house got suspended, but there has been no news regarding an investigation against him, the reason for his id suspension can be that- the chief executive officer has the ultimate responsibility to ensure that the code of conduct is followed by all such officers- fund managers, chief investment officers, dealers etc., another reason can be that- in some cases CEO’s had turned a blind eye and didn’t put a full stop to such unethical dealings.

This cover up act/ damage control provided assurance to SEBI and it initiated a full fledge investigation against the fund house and till now it has carried out search and seizure operations on 16 entities in more than 25 locations of Mumbai and Gujarat and has been quite successful as per the statements of the SEBI officials when they were asked about the progress in the matter when seizure of various files, mobile phones, hard drives, discs etc. took place from different locations.

A preliminary report was handed over to the SEBI by AMF and the final report is still under process and everyone is aware that till the time SEBI does not start charging the people involved in the front running, the AMF will not produce its final report and delay it till last second.


Offence of Front Running has been committed by the AXIS BANK’s AMF, it’s not practical that only two terminated employees could have carried out such activity without support from top executives, more names are there, but currently unknown, SEBI is actively investigating, soon more names will be coming out.

This is not a rare sight to see, many more high profile front running matters are being actively investigated by SEBI of IIFL GROUP and FIDELITY GROUP. This showcases that even though there have been many changes in SEBI’s regulation in past still the laws need to get more strengthen to control such activities from happening in future as it creates negative impact in the eyes of investors.

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

Author Bio

Qualification: Student- Others
Company: N/A
Location: Gurugram, Haryana, India
Member Since: 15 Jun 2022 | Total Posts: 3

My Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Download our App


More Under SEBI

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

February 2024