SEBI Bars Broking Dealer, 12 Entities From Accessing Markets For Front-Running 'Big Client' Trades

The Securities and Exchange Board of India (SEBI) has recently barred a brokerage dealer, Ashish S. Parekh, and 12 other entities accessing the securities market for five years. It held that they front-ran the trades of a “big client” by misusing non-public information about his impending orders.

In a final order passed by a whole-time member, Kamlesh C. Varshney, SEBI held that the noticees had engaged in fraudulent and unfair trade practices by exploiting advance knowledge of large client trades to make unlawful gains.

Rejecting claims that there was no direct proof of information flow, the regulator said, “without the knowledge of the impending orders of the Big client it would not have been possible for the Noticees to follow the trades of the Big client with such precision.”

The case followed a preliminary report submitted by the National Stock Exchange, which flagged suspicious trading patterns linked to the trades of Paresh N. Bhagat. SEBI's investigation covered the period from April to December 2021.

Bhagat was the chairman and managing director of Mangal Keshav Financial Services LLP, a registered stock-broking firm. His trades were executed through dealers Ashish S Parekh and Rajesh Joshi, giving them access to non-public information relating to the timing, size, and direction of his orders. SEBI said the information could influence prices because of the sheer size of the trades involved.

In December 2022, the regulator passed an interim ex parte order stopping the noticees from trading and asking them to deposit ₹125.25 lakh as alleged unlawful gains. The amount was placed in an escrow account, and the directions were confirmed a year later, in December 2023.

Parekh and others argued that the show cause notice relied only on circumstantial evidence such as trading patterns, call data records, and timing of trades. They contended that the absence of call transcripts showing communication meant there was no proof of access to non-public information or coordination.

SEBI rejected these arguments. It held that repeated, closely timed trades could not be dismissed as coincidence. “The absence of transcripts as evidence through which the information about the impending order would have been communicated does not negate the various instances of front running trades,”

SEBI said, noting a “concentration of communication among the Noticees during the market hours.”

Holding that the noticees had acted together, SEBI said, “having access to NPI about impending orders of the Big client and utilising the same to execute front-running trades and making ill-gotten gains is fraudulent, manipulative and unfair trade practice in nature.”

Along with the market ban, SEBI ordered disgorgement of Rs 125.25 lakh in unlawful gains and imposed monetary penalties including Rs 15 lakh on Parekh.