In a significant move to uphold integrity in the financial markets, the Securities and Exchange Board of India (SEBI) has taken decisive action against five individuals involved in unethical trading practices. On March 28, 2023, SEBI imposed a one-year ban on these individuals and ordered them to return illegal gains amounting to nearly ₹1.53 crore earned through front-running activities. This decision underscores the regulator’s commitment to maintaining transparent trading environments.

Understanding Front-Running in the Stock Market

Front-running is a deceptive trading strategy where traders exploit confidential information about upcoming trades before it is disclosed to the public. This not only compromises market fairness but also distorts the natural supply and demand dynamics of stocks. According to SEBI’s findings, Nikhil Khaitan, the primary dealer for major clients, engaged in these practices by trading on non-public information, significantly impacting the prices and trading volumes of specific stocks.

Penalties Imposed by SEBI

In its 49-page ruling, SEBI noted that Nikhil Khaitan, along with his associates—Om Prakash Khaitan, Manju Khaitan, Neha Khaitan, and Nidhi Tibrewal—colluded to execute front-running trades over a span of six years. The regulator detailed that these actions not only violated the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) guidelines but also artificially influenced market conditions.

• Penalties include:
  • ₹10 lakh on Nikhil Khaitan
  • ₹5 lakh each on Om Prakash Khaitan, Manju Khaitan, Neha Khaitan, and Nidhi Tibrewal

Immediate Action Required

SEBI’s Quasi-Judicial Authority, G. Ramar, emphasized that all involved parties must disgorge their wrongful gains, with a total of ₹1.52 crore to be returned within 45 days from the order date. This directive reflects SEBI’s stringent approach to enforcing compliance and curbing market manipulation.

Investigation Timeline

The investigation into the trading activities of the Khaitan family was thorough, spanning from September 2016 to August 2022. It was initiated after alerts were raised regarding potential front-running activities linked to significant clients. The findings from this probe have led to the current sanctions, highlighting SEBI’s proactive stance against unethical practices in the securities market.

In summary, the recent actions by SEBI serve as a stern reminder of the importance of ethical behavior in trading. By addressing front-running and enforcing penalties, SEBI aims to foster a fairer and more transparent market environment for all participants.