While this case and relevant facts will be discussed in a separate detailed article here later, a quick and brief background may be made here as a summary. The appellant was a portfolio manager of a foreign institutional investor (FII). It was alleged that the appellant, along with other parties, carried out front running of the trades of the FII. That is to say, the appellant was alleged to have carried out trades before and in anticipation of the trades of the FII and then reversed the trades when the FII actually carried out such trades. Thus, he – in concert with his alleged associates – purchased shares when he anticipated that the FII will purchase shares. When the FII actually purchased shares, he sold the shares. He was thus able to profit from such transactions. He and his alleged associates were charged with front running and thus violation of the SEBI FUTP 2003 and penalties were levied. However, these orders were reversed by the SAT.
The Securities Appellate Tribunal has given an interesting ruling that front running by an investor (who is not an intermediary) is not a violation of the SEBI FUTP Regulations 2003. It held this essentially on two grounds. Firstly, it held that the 2003 Regulations consider front running as a violation only if it is carried out by an intermediary but not if carried out by others. Secondly, even otherwise, it neither amounts to manipulation nor a fraud on the market. The orders levying penalties on the appellants were thus set aside.