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Front Running

Why is it in the news?

  • The Securities and Exchange Board of India (SEBI) has approved amendments to mutual fund regulations aimed at curbing front-running practices in India’s financial markets.

More about the news

  • Front-running involves trading in a stock or any other financial asset while possessing insider knowledge of a future transaction.
  • It typically occurs when a broker or investor takes advantage of privileged information about an upcoming large order or recommendation.
  • Front-running can be executed by a broker who is aware of a client’s impending order.
  • It can also be carried out by an investor who has inside information about a forthcoming recommendation from their firm.
  • Front-running is considered unethical as it enables the perpetrator to influence the price of the security by buying or selling before the large trade is executed.
  • This practice can potentially harm other investors by distorting market prices and depriving them of fair and equal opportunities in trading.

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