Quant Mutual Fund, managing assets worth Rs 93,000 crore, is under scrutiny by the Securities and Exchange Board of India (SEBI) for suspected front-running practices.
SEBI conducted search and seizure operations at locations in Mumbai and Hyderabad associated with Sandeep Tandon-owned Quant MF. Front-running involves intermediaries exploiting advance knowledge of large mutual fund transactions to profit from personal trades.
How does front-running operate?
Intermediaries execute large stock market orders on behalf of mutual funds. They may trade stocks just before a mutual fund enters the market, anticipating price movements. This practice is illegal as it uses insider information, unfairly disadvantaging mutual funds and their investors.
Distinguishing front-running from insider trading
While both front-running and insider trading are unlawful in financial markets, they differ in the nature of information used. Insider trading involves trading based on non-public company information that can impact stock prices upon public disclosure.
Impact on investors
Front-running can harm investors by causing stock prices to move unfavorably before mutual funds complete their transactions. This results in higher purchase costs or lower sale proceeds for mutual funds, affecting potential returns.
Quant Mutual Fund situation
Quant Mutual Fund has been a top performer, increasing its AUM significantly from Rs 258 crore in January 2020 to over Rs 90,000 crore by June 2024. The scrutiny could potentially affect its fund performance and investor confidence.
SEBI’s actions against front-running
SEBI imposes penalties on individuals involved in front-running, including dealers and fund managers colluding with external brokers. Recent measures include enhanced surveillance and internal controls within asset management companies (AMCs) to prevent market abuse.
SEBI’s efforts to curb front-running include mandatory recording of all communications by dealers and fund managers, and the establishment of institutional mechanisms by AMCs to deter market misconduct.
