Front running activity in Indian mutual fund sector and regulatory action by securities and exchange board of India

Purpose The study aims to explore various front-running activities in the Indian mutual fund industry and the regulatory action taken by Securities and Exchange Board of India (SEBI) and compares them with those in global markets. It discusses financial crime theories to assess the motives behind financial crimes like front-running and provides recommendations to deter the same. Design/methodology/approach The authors conduct an exploratory study to examine front-running cases in the Indian mutual fund sector in relation to financial crime theories and compare them with global markets. Findings While technology helps SEBI track fraudulent activities instantly, it also enables fraudsters to take undue advantage of regulatory loopholes. Though SEBI has made several attempts to bring in a robust regulatory system, it still needs to strengthen the technological infrastructure and enforcement mechanism to meet international standards. Research limitations/implications This study explores only front-running practices in mutual fund sector in line with the purpose of the study. Practical implications The financial crime theories discussed in the study help identify the motives behind front-running and the measures to be taken by the regulator and asset management companies to combat the crime. Social implications A robust enforcement mechanism is essential to build investors’ trust and ensure a smooth flow of funds into the sector to achieve financial inclusion. Originality/value This is the first study on front-running in the Indian mutual fund industry and the findings could be useful to the regulator when introducing major reforms to curb insider trading and front running.