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SEBI Settlement order in Fraud of Aequitas Investments

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The The Economic Times featured an article discussing the ramifications of the SEBI Settlement Order of July 04, 2023, in respect of an individual in relation to alleged violation of SEBI Prohibition of Fraudulent and Unfair Trade Practices Regulations.

The settlement order pertains to a complaint alleging that certain individuals were engaged in Front Running/ Mirror trading of trades of its clients Aequitas Investments, an investment management firm. As per the Corrigendum to the SEBI Settlement Order, the investigation revealed that the Noticee had mirrored certain trades of Aequitas Investments and thereby violated the provisions of Section 12(A)(c) of SEBI Act and Regulation 3(a), 3(d) and 4(1) of PFUTP Regulations. The matter was settled for INR โ‚น45,99,600/- which included unlawful gains made by the Noticee.

Mirror Trading is a technique that allows an individual to copy the trade of another on a real-time basis.

This SEBI order has spurred discussions on legality of mirror trading as there is ambiguity with respect to the SEBI regulatory framework on the same.

In this backdrop, Mr. Sumit Agrawal, Founder of Regstreet Law Advisors and former SEBI Officer, commented that, โ€œThese approaches to trading are not formally defined or banned. Each strategy encompasses various forms and variations. However, regulatory bodies express concerns when these trading methods involve unregulated brokers or trading platforms or when they facilitate front-running or the unauthorised exploitation of a traderโ€™s proprietary information. To ascertain their legality, factors such as the specific trading strategy, trade placement methods, trading platforms used, and the adequacy of disclosures are assessed.โ€

Readers are also welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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