The Securities and Exchange Board of India (Sebi) has cleared Tata Mutual Fund of wrongdoing following an investigation into suspected front-running at the mutual fund.
Front-running happens when a person with inside knowledge of an upcoming, large buy or sell order of shares takes a position before such an order is placed and profits from the consequent rise or fall in the price of the share.
Institutional orders, because they are large, tend to influence share price movement. Front-run stocks turn out to be more expensive for a fund since they end up paying more for the same number of shares due to price rise. Andinsider shorting lowers a fund’s returns when selling, since they get less.
The regulator had been investigating Tata Mutual Fund since 2010. DNA had reported on the same in November the same year.
Two months ago, a source had indicated that the mutual fund had been cleared of the charges. A follow-up query from DNA under the Right to Information Act revealed that the probe has been completed. “In the matter of Tata Mutual Fund, investigation has been completed and no adverse findings were observed,” said Sebi’s reply. A Tata MF spokesperson declined to comment.
Sebi has investigated at least two other mutual funds for front-running. Both have settled front-running charges through consent orders, a way of financial settlement which does not involve either admitting or denying guilt.
The stock market regulator passed a consent order in the case of L&T Investment Management in the case of front-running by one of its employees, Vikas Upadhyay. He had been charged with front-running orders of the firm in April-May in 2008. The decision to drop proceedings was taken after the firm, formerly known as DBS Cholamandalam Asset Management, filed an application proposing willingness to pay Rs10 lakh as settlement charges, without admitting or denying the charge.
HDFC Asset Management Company paid a sum of Rs55 lakh to settle charges against the company, its trustee as well as its managing director for failing to prevent front-running at the mutual fund. The regulator passed the order in September 2011.
Tata Mutual Fund is the 11th largest mutual fund in the country. It had average assets under management of Rs21,473.31 crore during the three months ended December 2011, according to data from industry body the Association of Mutual Funds in India.
Comments