A dealer of Life Insurance Corporation (LIC) of India has been caught by SEBI for front running the trades in the stock market of the insurance giant. In its order issued on Thursday, SEBI barred LIC dealer Yogesh Garg from buying, selling or dealing in securities until further orders. SEBI has barred four of his relatives too.
SEBI observed in its order that organisations such as LIC are critical to the securities market and the economy at large. “They are expected to have adequate processes to prevent, detect and remediate any fraudulent, manipulative or unfair trade practices by its employees. Employees of such organisations have a significant responsibility to uphold the highest standards of regulatory compliance. Any prima facie transgression of regulations, particularly by an employee of such an organisation, needs to be dealt with sternly,” SEBI said.
According to the regulator, Garg prima facie appeared to have had knowledge of confidential information regarding the size and timing of the impending buy/sell orders of the insurance behemoth, which could impact the price of the underlying scrip.
The order stated that Garg was working with LIC since November 2011 and during the examination period, he was working in the investment department of LIC through which trades on behalf of LIC were placed. It observed that the trading pattern of the alleged front-runners during the examination period shows that orders for the first leg of their intraday trades were placed and executed just prior to the impending order(s) of LIC and the order(s) for squaring off their trades — second-leg sell/buy order(s) were placed at a limit price which is less/more than the buy/sell order limit price of LIC, ensuring that such sell/buy order(s) would get matched with the buy/sell order(s) of LIC.
It was also observed that the aforesaid trades were executed in Buy-Buy-Sell (“BBS”) and/or Sell-Sell-Buy (“SSB”) pattern, through which the accounts of the alleged front-runners were able to generate substantial profit. By adopting the aforesaid mechanism, the noticees have prima facie engaged in a scheme of front-running LIC’s orders, thereby violating the provisions of SEBI Act and PFUTP Regulations.