The Securities and Exchange Board of India, the market regulator on 19 March, 2024 confirmed that an employee of the Life Insurance Corporation of India (LIC) was involved in the front-running of a big client’s trades.
Front running, also known as tailgating, refers to an illegal practice in the stock market where an entity enters into an equity trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge of a large pending transaction that will influence the price of the underlying security.
In April 2023, Sebi barred five entities, including an employee of Life Insurance Corporation of India (LIC), from the securities market and impounded illegal gains of Rs 2.44 crore made by them, in a case pertaining to front-running the trades of the state-owned insurer.
In the confirmatory order, SEBI said, “The Interim Order was passed based on the prima facie conclusions to prevent further perpetration of fraudulent trading activity and to prevent defalcation of the wrongful gains cumulatively amounting to INR 244.09 lakh (as elaborated in the Interim Order). In view of the reasons discussed in the preceding paragraphs, I find that the submissions of the Notices are insufficient to refute the prima facie conclusions drawn in the Interim Order”.
It was further note that a detailed investigation is ongoing in the present matter and the regulator sees no reason or grounds to differ from the prima facie findings in the Interim Order, and therefore, the finding in the Interim Order that the Noticees have prima facie front run the trades of Big Client resulting in violation of section 12A (a), (b), (c) and (e) of the SEBI Act and regulations 3(a), 3 (b), 3 (c), 3(d), 4(1) and 4(2)(q) of PFUTP Regulations stands confirmed.
SEBI initiated investigations after they got surveillance alerts about possible front running by noticees, between January 2022 and March 2022. Trades between 01 January, 2020 and 15 March, 2022, were examined
In response to the media reports going around, the PSU life insurance giant submitted an official response on Wednesday.
Appropriate action against the concerned official has been taken by disciplinary authority by his removal from services of the corporation after following the due administrative procedure. LIC has always been in the forefront of being a compliant organisation and we will continue to strengthen further on all issues of Corporate GovernanceLIC said.
We have further placed robust controlling mechanisms along with best practices to prevent any kind of front running. All stringent measures for transactional hygiene of the dealing room are put in place, i.e., entry by biometric, cctv coverage, restriction on electronic gadgets etc, it added.
