Regulatory Gaps And Market Fallout: Investigating Front-Running In Asset Management Companies
- IJLLR Journal
- Jul 8
- 1 min read
Kabir Kumar, OP Jindal Global University
ABSTRACT
Asset Management Companies (AMC) occupy a pivotal role in a state’s economy, driving market mobility and diverse investments. Their primary operation lies in the management of mutual funds and occupies an intermediary role between investors and the market. Such a fiduciary relationship aims to enrich the investor with diversified investments, expert opinions, and strategic market interactions. The Securities and Exchange Board of India (Mutual Funds) Regulations 2003 serves as the father law for introducing code of conduct for AMCs and trustees. However, the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations of 2003 prevails if Code of Conduct is broken. Predictably, mutual fund managers engage in ‘front-running’ resulting in market abuse and the gain of illegal profits. Although the law does not explicitly deal with the offense of front-running, the regulatory framework drawn by SEBI enables the Court to determine liability in such cases. The problematic discontinuance in the legal framework to justify the penalty for front-running has resulted in several AMCs paying an intangible penalty before the ascertainment of its guilt for unfair trade practice. Effects of this concept appear to be amplified in the context of the loose interpretation of liability along with the chasm existing within the laws governing the same. This article deals with determining the efficiency of the legal framework for the prevention and punishment of front running and its adequacy against the backdrop of the non-statutory consequences faced by the AMCs.
