Axis Securities Resolves Front-Running Case with Sebi, Pays Rs 14.62 Lakh Settlement

Axis Securities has resolved a case with the Securities and Exchange Board of India (Sebi) by paying Rs 14.62 lakh. This case involved front-running trades by its former employee Vikrant Bhimrao Kadam and his friend. The settlement was reached without admitting or denying any findings. Sebi's order concluded the proceedings against Axis Securities, initiated by a show cause notice dated June 4, 2024.

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Front-running is an illegal activity where trades are made using confidential information before it is disclosed to clients. Sebi's investigation focused on the trading activities of Mandar Ulhas Bhatkar and others linked to him, suspected of front-running trades for SVI Consolidated Pvt Ltd, a client of Axis Securities. The probe revealed that Kadam, a former dealer at Axis Securities, and his friend Bhatkar were involved in front-running trades in the equity and derivatives segments of NSE.

Compliance Policy Breach

The investigation found that Axis Securities' Dealer & Branch Manager Compliance Policy was breached by some staff members across various cities in India. This lapse allowed Kadam to collaborate with Bhatkar in front-running activities from Axis Securities' premises using mobile phones. Consequently, it was alleged that Axis Securities failed to exercise due diligence as required under Sebi's Stock Brokers Regulations.

Sebi clarified that Bhatkar was never an employee or associated with Axis Securities. Additionally, Kadam is no longer employed by the company. The regulator's investigation showed that Bhatkar received funds from Kadam to trade in securities where the Big Client was active. Bhatkar also permitted Kadam to use his trading account for these activities.

Strengthening Operations

Axis Securities stated it has enhanced its operations through process reviews and maintains zero tolerance for unethical practices. The company aims to uphold the highest standards of integrity. The settlement application filed by Axis Securities proposed resolving the broker regulation violations without admitting or denying any legal conclusions.

The show cause notice issued on June 4, 2024, alleged that Kadam and Bhatkar exploited the Big Client's orders to earn significant profits through front-running. This notice served as a basis for the subsequent settlement proceedings with Sebi.

The case highlights the importance of strict compliance policies within brokerage firms to prevent unethical trading practices. By addressing these issues, Axis Securities aims to restore trust and ensure adherence to regulatory standards in its operations.