Quant Mutual Fund Fiasco- An exploration of Front Running in India

Abstract

The Quant Mutual Fund scandal has brought the issue of front-running in India’s securities market to the forefront. This article examines the regulatory system surrounding front running in India, especially in the wake of the Securities and Exchange Board of India’s (“SEBI”) investigation into the fastest-growing mutual fund in the country. Despite existing regulations under the SEBI Act, the framework for preventing market manipulation like front-running remains inadequate, characterised by vague prohibitions and minimal whistleblower protections. This analysis delves into the intricacies of front running, drawing parallels with the United States’ (“U.S.”) and Singaporean regulations, and highlights the significant gaps in India’s current approach. The article also explores recent amendments to the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (Mutual Fund Regulations) aimed at curbing front running and suggests critical enhancements to ensure more robust enforcement. The proposed changes include clearer definitions of key terms, expanded liability for those involved, and stronger protections for whistleblowers. By adopting these recommendations, SEBI can significantly strengthen the regulatory framework, safeguard market integrity, and enhance investor confidence in India’s capital markets.