Kotak broking’s dealer under SEBI scanner for front-running

Market regulator SEBI is investigating Kotak group’s equity broking arm and a dealer for front-running, sources told 

Sources claimed that search operations were conducted by SEBI at the premises of Kotak group’s broking arm and the dealer, and that the exercise concluded this week. The dealer was front-running the traders of one of South India’s big portfolio management schemes with the help of a Mumbai-based broker, SEBI reportedly found during the course of its investigations.

Kotak’s response

A spokesperson for Kotak Mahindra Group said, “There is no investigation on any of our dealers from Kotak Institutional Equities. There was no search conducted by SEBI at the premises of Kotak Institutional Equities. SEBI officials visited our retail brokerage office, and sought information about one of our retail dealers, which we have provided. At Kotak Securities, we follow the highest governance standards and have zero tolerance for unethical activities.”

“SEBI will have to compel institutions to devise a periodic sensitisation mechanism, which can always keep the employees mindful of the dangers and the downfall of issues like front running and instil fear,” a legal official dealing in SEBI matters said.

Front-running is trading in stocks based on insider knowledge of a future transaction that is likely to affect its price. In the current case, SEBI unearthed operations based on group chats of various people who were already under investigation, the sources said.

This is the second major case of front-running that has been unearthed by SEBI this year. Earlier, the regulator had started its investigations into a massive front-running operations at Axis Mutual Fund, after it came to light that one of the fund managers had purchased the flashy Lamborghini and other properties. The Income Tax Department conducted search operations recently in relation to the Axis MF case.