Published On: 23rd December 2025
Authored By: Akshat Pugalia
National Law University, Odisha
1. ABSTRACT:
The act of front-running is still very common, and continues to still abuse the securities market, though the Securities and Exchange Board of India (SEBI) has made attempts to mitigate the issue, This phenomenon has made the public lose trust in the market and has called the market’s integrity into question. This paper takes a very in depth consideration of the legal policies the canter has about front running including, the more contemporary cases of Ketan Parekh and Sanjiv Bhasin. It points out, the critical gaps in the enforcement of policies set in place by the SEBI including, procedural slowness, loose definitions of words and lack of heavy enough punishment. This paper implements a more in depth analysis of the policies set in place by foreign countries and gives certain policies put in place for India. They include, the policies of legal modernization, restructuring institutions for legal reforms and heavy surveillance. The result points to the frameworks set for the proxy to front running and shows the clear lack of modernized policies to utilize against the modernized methods of market manipulation.
2. INTRODUCTION
Front–running conflicts with market integrity and is perhaps the most sophisticated form of market manipulation in today’s securities markets. Front–running is a process whereby market players gain an undue advantage by front-running the market and are always in possession of sensitive information about in the near future potential market movers that would harm ordinary investors and the entire market. According to the Securities and Exchange Board of India, front–running is “the act of using secret information to purchase or sell securities or to use options or futures, prior to a substantial order that is associated with a transaction that is about to take place.” It erodes the bedrock norms of fairness and transparency that underpin the regulation of securities anywhere in the world. India’s securities market has witnessed unprecedented growth in the level of retail participation, with more than 2.5 crore demat accounts opened in a ōult of a new trend, many of them young, first time investors from the lower income groups with scant ōnancial awareness and education. This has resulted in new opportunities for wealth creation as well as new and better methods of explosive exploitation. Between April 2024 and June 2025, for instance, SEBI reported 886 different entities in the wake of fraudulent and unfair practices, and front-running in particular. The fact that these violations continue to happen the rules suggest that, as is the case in many other areas, the present regime lacks a proper structural oversight.
3. Evolution of Front-Running Regulations in India
3.1. HISTORICAL DEVELOPMENT
India’s journey in dealing with front-running started with the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (1995 Regulations). Regulation 6(b) of these regulations prohibited “any person” from dealing in securities pending execution of “any order” of such person’s client with respect to the same securities. However, the 1995 were not able to deal with the nuances of the developing market practices. The shift was accentuated with the coming into force of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Markets) Regulations 2003 (PFUTP Regulations). From the subsequent lacunae, Regulation 4(2)(q) addressed the most to front-running practices, as it prevented intermediaries from trading in respect of client orders of significant size for which trading instructions have not been made public. The intricacies and most initial formulation wholly lacking was the lack of intermediaries focused jurisdiction with limbs egress into the workings of many market manipulators.
3.2. JUDICIAL EXPANSION
The Regulation shift post Kanaiyalal Baldevbhai Patel judgment in 2017 has been a confluence of many changes in regulation application and fearing intent. The unique and necessary requirement of action added were rule4(2)(q) to the PFUTP Regulations and front running and also added the market unkind and the non-intermediaries. The unprecedented determination also provided the non-public client instructions and their privacy to blame eased when proved to be incorporated. Due to this guidance, SEBI amended regulation 42(q) in February 2019 to include essentials of front running:
- Possession of non public information
- Any information regarding any substantial financial transaction
- Trading in advance of that transaction.
However, this amendment left critical questions unanswered such as what constitutes a substantial transaction.
4. Case study analysis
4.1 The case of Ketan Parekh and SEBI
Ketan Parekh, who gained infamy for his role in the 2001 stock market scam, has again fallen in in the crosshairs of SEBI, this time for an elaborate scheme of front-running spanning the period of January 2021 to June 2023. Parekh, along with 21 of his associates, obtained sensitive data concerning significant trades that an important client, who managed USD 2.7 trillion in assets, intended to execute. The operations included intricately designed trading and the use of encrypted means of communication, such as mobile phones owned by family members. Parekh’s actions of continuing to undertake manipulative practices, in spite of bans and serving jail time, underscored the inability to deal effectively with relapsing offenders. It illuminated the other side of the coin for recidivism—higher, more effective, and more comprehensive deterrent measures. Parekh and his associates received an interim order from SEBI which barred them from the securities market for an undefined period of time and initiated processes to recover profits made as a result of illegal activities. However, the over two-year period for the investigation, which was much too long, enabled significant dissipation of profits made from illegal activities, or which may have been stored, much too easily.
4.2 THE SANJIV BHASIN CASE
Sanjiv bhasin (2025) case is a transformation of frontrunning bhasin suddenly gaining 11.37 crore rupees from his patronage of tv and telegram. As an IIFL Securities director and a frequent business commentator, Bhasin is unbothered by the 11.37 crore rupees he is literature to have gained by illicitly bouhgt and pushed equittes on television. Using unethical business policies, he would spend his time in three distinct phases of bisnis. During his first phase, he would use proxy companies such as Venus Portfolios and Gemini Portfolios to build a stockpile. After Venus Portfolios and Gemini gained enough stock he would publicly brag about the stock on financial media and retire once Venus Portfolios and Gemini gained enough to retire on the stock. After the retail investors in the company increased, he would retire when the investors had gained enough to retire. The case really showed the power the investors were losing in the hands of the profitable ‘experts’ and how poorly the media system was used to maintain capitalism.
4.3 AXIS AND QUANT MUTUAL FUND CASES
The Axis Mutual Fund case (2021-2022) is about Joshi, head fund dealer, along with his 20 henchmen, who gained 30.56 crore rupees by ‘front running’ on big confidential trades. Quant Mutual Fund was under the scrutiny of SEBI law enforcement to Summon and Confiscate. This was After Quant Mutual Fund’s estimated 9,300 crore rupees worth of trades that were suspected to be ‘front ran’. These cases lit a huge red flag concerning the missing governance and control that is needed to order the internal system of order information misuse that is used on high level, well known financial institutions.
5. ANALYSIS OF SEBI’S ENFORCEMENT APPROACH
5.1. INVESTIGATIVE CHALLENGES AND PROCEDURAL DELAYS
SEBI has difficulties investigating front-running charges. Current systems use encrypted messages, burner phones, offshore accounts, and mule networks to hide the trail of transactions. The Ketan Parekh case illustrates some of these difficulties. In this case, the painstaking review of some telecom records including mobile numbers of family members became critical to constructing the interconnections between trades and some non-public information. A serious problem is the time lapse between the detection of violations and the enforcement actions. The Sanjiv Bhasin case took more than four years to investigate (January 2020-June 2024), whereas the Ketan Parekh case took more than two years. These gaps in periods of time allow violators to dissipate assets and keep operating, under different structures, which weakens the deterrence significantly.
5.2. STRUCTURAL LIMITATIONS IN ENFORCEMENT:
The enforcement arm of the SEBI has to a large extent to rely on civil actions which include monetary penalties, disgorgement of unlawful profits, and temporary bans from the market. Contrarily, criminal actions under SEBI Act Section 24 are completely skipped and not used, which speaks volumes for serious violations of the Act. Such a lack of balance in the system is the very reason why some offenders will approach the law with a view to seeing it as penalties which are just a “cost of doing business.” In contrast to the US Securities and Exchange Commission (SEC), which has separate enforcement subdivisions with expert forensic resources, SEBI functions with a more streamlined configuration and is more often than not the subject of jurisdictional inexactness when liaising with other bodies such as Enforcement Directorate and Reserve Bank of India.
6. Legal Ambiguities and Regulatory Gaps
6.1. Definition uncertainties.
A basic ambiguity in Regulation 4(2)(q) of the PFUTP Regulations regards the term “substantial” transaction, which is set undefined. SEBI has readily come to inconsistent conclusions on this determination: Subjective Assessment: In Reliance Securities case (2023), SEBI held that testimony of whether order is substantial depends on various factors including liquidity of stock, market conditions and economic situation and so on. Reasonable Person Test In the Quest Investment case in 2023, SEB used the “reasonable person” standard – whether a reasonable person would have expected the transaction to affect the stock price . Numerous Thresholds: In the Banhem Securities case (non-monetary) (2023), SEBI treated orders amounting to at least 3% of daily traded volume or 4000 shares as substantial listing total, but without any indication of why these are taken as such. This definitional vagueness leads to uncertainty for participants in the markets and problems in enforcement for regulators. The lack of specific bright line rules, however, allows violators to claim that their trades did not meet the “substantial” threshhold to complicate prosecution.
6.2. When Due Process Is an Issue in Ex Parte Orders:
SEBI is increasingly relying on issuing interim ex parte orders to prevent from causing more damage during investigations, as in the Sanjiv Bhasin Case where the regulator acted without prior hearing . While at times such measures are necessary to preserve assets and protect markets, such measures raise due process concerns with respect to the right to defend against the allegation. The 149-page order against Bhasin and associates included asset freezes, market bans and impounding of gains without hearing their perspectives . Although SEBI was able to justify this urgency on grounds such interlocution of evidence destruction and dissipation of assets, the wide reaching of such powers calls for greater procedural safeguards to prevent possible abuse of this power. The insistent recurring of front-runner if previously penalized entities like Ketan Parekh shows that there is lack of deterrence in the current structure of the penalties. Section 15HA of the SEBI Act provides for penalties up to an amount of Rs 25 crores or 3 times the `illegal gains’ taken, but in practice it is quite possible that it may end up much much lower than the maximum possibilities. Moreover, temporary market bans are often insufficient to deter drapers determined to continue their activities either by their proxy entities or by structure alteration into form. The failure to criminally prosecute, even in cases of egregious violations-an procedure that includes possible imprisonment-adds a further layer of diminution to deterrence value.
7. Comparative International Perspectives
7.1. United States: Aggressive Enforcement of Despite Tripartite Regulation The United States has a tripartite regulatory structure to fight front running for, the SEC, Financial Industry Regulatory Authority (FINRA), and Commodity Futures Trading Commission (CFTC). Enforcement in particular is also much more aggressive with cases such as Morgan Stanley’s $249 million settlement for block-trade front-running illustrating significant financial repercussions . Crucially, the US regulators often launch criminal prosecutions leading to imprisonment and industry lifelong bans on individuals. The SEC’s Consolidated Audit Trail facilitates near-real-time oversight of all trades.The SEC’s Consolidated Audit Trail allows for near-real-time monitoring of all trades between broker-dealers, greatly improving the ability to detect fraud.
7.2. United Kingdom and EU: Preventive Frameworks and Serious Penalties The United Kingdom regards front-running as a form of insider trading which is covered by the Market Abuse Regulation and Financial Conduct Authority (FCA) Handbook . The regime puts a focus on preventive actions such as mandatory internal reporting mechanisms and strict compliance requirements for financial institutions. Penalties include imprisonment for a period of up to 10 years and high fines, evidence of the seriousness given to violations of market integrity. The FCA uses an Artificial Intelligence-driven Surveillance, Monitoring, Analysis and Reporting Technology System for cross-market surveillance to develop proactive patterns for suspicious activities.
8. Recommendations on Regulatory Reform
8.1. Law and Meaning of Clarifications SEBI should issue guidelines clarifying the meaning of what constitutes a “substantial” transaction taking into account both the qualitative parameters (impact on the market, liquidity conditions) and quantitative parameters (as percentage of the average volume traded during a single day, minimum value thresholds are important) . This would increase predictability to market participants and increase the strength of enforcement consistency. The regulator should also prescribe a presumptive standard for front running patterns noting evolving variations over and beyond the traditional BBS (Buy-Buy-Sell) and SSB (Sell-Sell-Buy) sequences to include BSB (Buy-Sell-Buy) and SBB (Sell-Buy-Buy) patterns which have been noticed in recent cases .
8.2. Improved Surveillance and Technology Capacity SEBI to push ahead with implementation of its Data Lake initiative to centralise trade, order, communication data across venues . Integrating AI and machine learning tools with pattern recognition capabilities will facilitate the ability to realise real-time suspicious trading activity detection, from current retrospective investigations. Such a regulator should require standardised digital communication monitoring to be monitored across intermediaries, with the retention and analysis of WhatsApp, Telegram and other electronic messages that have featured so prominently in recent cases .
8.3. Strengthened Enforcement and Deterrence.
SEBI should ensure that it develops clear yardsticks for seeking criminal prosecution under Section 24 of the SEBI Act, especially when dealing with recidivists, high gains or utmost attempt of concealment. Establishment of one as a financial court would help to speed up the resolution of complex securities crimes, in the face of current delays in legal processes that weaken the effectiveness of enforcement. For penalties, SEBI should consider a presumptive penalty regime which requires minimum disgorgement of multiples of unlawful gains (e.g., 2-3 times) in deliberate violation cases as it should ensure that penalties are greater than potential profits from wrongdoing.
8.4. Institutional Reforms and Capacity Building:
SEBI should set up a market abuse unit with forensic excellence in accounting, data analytics and investigations in the special cases of front running, among other things. Improvement in inter-agency coordination through formal information-sharing protocols with Enforcement Directorate, Income Tax Department and Reserve Bank of India in dealing with jurisdictional fragmentation that exists at present. The regulator should also initiate whistleblower incentives modeled on successful SEC programs with substantial financial rewards (e.g. 10 – 30% of recovery) for quality information that leads to successful enforcement actions.
9. Conclusion
Front-running is a challenge in the integrity of the Indian securities market that is still continuing to pose a challenge for the Indian securities market despite the effort of SEBI to keep up with this challenge by having increasingly sophisticated regulatory response. The cases discussed from Ketan Parekh’s recidivism to Sanjiv Bhasin’s media-enabled manipulation everything from the evolution of malpractices of fraud to the structural limitations in the ways fraud is currently being tough. The legal vagueness of some of the key concepts, such as “substantial” transactions, combined with-lying, delaying police investigations and insufficient deterrence lead to an environment where market abuse can continue despite regulatory efforts. The exponential increase in participation in retail makes any harm prompted by such violations even larger and truly in need of immediate reform. Dealing with these challenges thus entails multidimensional approaches: clarification of legal definitions, improvement of technology used for surveillance, strengthening of penalties and building institutional capacity. Learning from the best practices of other countries while tailoring applications to the idiosyncratic Indian market environment, SEBI needs to move from an essentially ad hoc enforcement mechanism to proactive prevention through data-driven surveillance and meaningful deterrence. As Indian Markets are continuing the trajectory and integration process veering the Global Financial World, the need to protect the Market Integrity is becoming increasingly vital. The recommendations set out below set out a roadmap for the comprehensive regulatory framework which is essential to bring certainty to the period of detecting, deterring and punishing front-running in a befitting manner in order to protect investment and maintain the investor’s confidence in India’s economic future.
10. References
- Securities and Exchange Board of India Act, 1992
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003
- SEBI vs. Kanaiyalal Baldevbhai Patel, Supreme Court of India (2017)
- SEBI Interim Order in Matter of Sanjiv Bhasin and 11 Others (2025)
- SEBI Mutual Funds (Second Amendment) Regulations, 2024
- Report of Committee on Fair Market Conduct under Chairmanship of Dr. T.K. Viswanathan (2018)
