Tata Mutual under Sebi probe for front-running

The Securities and Exchange Board of India (Sebi) is investigating Tata Mutual Fund for suspected front-running, according to three people familiar with the development.

Sebi has sought information and data in this regard from the asset management company and the investigation is still on, they said.

Tata Mutual, the tenth-largest mutual fund with nearly Rs22,000 crore worth of assets under management as of September, confirmed the investigation and said it is cooperating with the regulator.

“Sebi had once sought to know our systems/ processes in this regard... We had also given a complete list of all dealing and fund management personnel’s landline as well as mobile numbers for their records and further investigation if required,” an official spokesperson said.

It emphasised its commitment to transparency and to following a vigilant policy with regard to keeping a watch on such activities. “Tata AMC is always willing to do all that is required to not only ensure compliance but also to act in the best interests of our investors, and the investing public generally,” it added.

Front-running refers to an activity where a person with inside knowledge of an upcoming large order takes a position ahead of it.

Here’s how it works. Consider a mutual fund that buys a company’s stock worth Rs5 crore. Suppose a dealer with knowledge that this order will be placed buys some stock ahead of it. When placed, the sheer size of the mutual fund would cause some increase in price. At this point, the front-runner will exit with a neat profit.

Meanwhile, his purchase would have made it more expensive for the fund to buy the same quantity of stock.

This is what is said to have happened in the case of HDFC Mutual Fund, where a dealer is said to have leaked information on the fund’s buying and selling activities to a college friend, among others.

In that case, Sebi banned those involved from the securities market and asked the asset management company to overhaul its control systems.

Sebi had made the order in the case of HDFC MF public in June this year.

In October, DNA had reported that Sebi is investigating a number of mutual funds over cases of front-running, after the regulator confirmed the investigation in reply to an application filed under the Right to Information Act.

Another application in the matter of Tata AMC filed by DNA elicited a similar response from the regulator. As before, Sebi confirmed that the investigation is ongoing while declining to go into details.

“It is informed that one case is being investigated by Sebi. As the matter is under investigation, disclosure of any information at this level would impede the process of investigation and therefore,
disclosure of the same is exempted under section 8(1)(h) of the RTI Act,” it said.

Sources say Tata isn’t the only mutual fund under investigation. A number of other asset management companies have also been summoned by the regulator as part of investigations over the last several months.

here’s no word yet on the extent of the financial losses that might have been caused to investors in these cases, but one thing is clear — mutual funds aren’t done with Diwali cleaning yet.

Source: http://www.dnaindia.com/money/report_tata-mutual-under-sebi-probe-for-front-running_1464063