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regular-article-logo Thursday, 18 July 2024

Quant Mutual Fund accused of front-running, SEBI conducts search and seizure operations

Front running is an illegal practise where brokers — who have advance information about a large buy or sell order that the public is unaware — take position in a stock before an institution such as a mutual fund places an order. After that order is placed, the entity exits the stock at a profit

Our Special Correspondent Mumbai Published 25.06.24, 07:47 AM
Quant Mutual Fund.

Quant Mutual Fund. X/@quantmutual

The Securities and Exchange Board of India (Sebi) has conducted search and seizure operations in two locations of Quant Mutual Fund for alleged front-running — or dealing on price-sensitive information before its general release.

The news hit the market on Monday morning and sparked a sharp slide. The 30-share BSE Sensex declined 463.96 points to 76745.94. The Nifty dropped 149.6 points to 23351.50. But by the afternoon, the indices had recovered and were trading slightly above Friday’s close.

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The Sandeep Tandon-led fund house said it is being enquired by the market regulator and is fully committed to co-operating with Sebi throughout any review.

“Recently, Quant Mutual Fund has received inquiries from Sebi, and we want to address any concerns you may have regarding this matter. We will provide all necessary support and continue to furnish data to Sebi on a regular and as-needed basis,” it said in a statement.

This response came after a Moneycontrol report which said that Sebi conducted search and seizure operations across its two locations —Mumbai and Hyderabad — for a suspected case of front-running.

Quant Mutual Fund has reportedly been under surveillance of Sebi for a long period and its investigation saw extensive enquiries.

Front running is an illegal practise where brokers, fund managers or traders — who have advance information about a large buy or sell order that the general public is unaware — take position in a stock before an institution such as a mutual fund places an order. After that order is placed, the entity exits the stock at a profit.

Quant Mutual Fund has been one of the fastest-growing fund houses in the country with over 80 lakh folios. Its AUM has multiplied from over 250 crore in 2020 to more than 93,000 crore now.

``With over 8 million folios and an asset under management (AUM) of 93,000 crore, our commitment to maintaining investor confidence remains steadfast. We appreciate the trust and support of our investors, and our advanced research capabilities and analytical tools will continue to keep our investors ahead of the curve,’’ the fund house added.

Some of the stocks held by Quant MF include Reliance Industries, HDFC Bank, Adani Power, Tata Power, Jio Financial Services, Life Insurance Corporation and Britannia Industries.

``What will happen to the funds in the long run is any body’s guess. If Sebi finds front running, flows will slow down / redemptions will happen and hence near-term under performance but their process to select stocks have been working well and if the funds deliver returns, investors memory is weak and we all know that,’’ Kirtan A. Shah, managing director, Credence Family Office, said in a post on X.

This is not for the first time that a mutual fund or its officials are facing suspicions of front-running.

In 2023, Sebi in an interim order barred 21 entities, including Axis Mutual Fund’s former fund manager Viresh Joshi, from the securities market in connection with alleged front-running at the fund house.

The regulator had then also ordered impounding wrongful gains worth 30.56 crore earned by them through “prima facie” front running activities. After that order, Joshi had approached the Securities and Appellate Tribunal (SAT).

In May, the Sebi board had approved changes in mutual fund regulations to prevent the malpractice. It had directed fund houses to set up an institutional mechanism to identify and prevent market abuse.

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