Sebi Sends Show Cause Notice To Six Capital Group FPIs In Ketan Parekh Front-Running Case

The Securities and Exchange Board of India (Sebi), has issued show-cause notices to six foreign portfolio investors (FPIs) linked to US-based investment giant Capital Group over alleged lapses in handling confidential trading information. The action is part of Sebi’s wider investigation into an alleged front-running network connected to stock market operator Ketan Parekh.

According to reports, Sebi believes sensitive trade-related information may have been improperly shared by two traders associated with the FPIs. The information was allegedly passed to Singapore-based trader Rohit Salgaocar, who then reportedly shared it with Ketan Parekh and his network. This allowed traders linked to the network to allegedly place trades ahead of large institutional transactions and make illegal profits.

Front-running is considered a serious market offence and involves using unpublished or confidential trading information to gain an unfair advantage in the stock market. The latest notices mark a significant escalation in Sebi’s investigation into the alleged trading network. A show-cause notice is a formal communication asking entities to explain why regulatory action should not be taken against them. The six FPIs now have an opportunity to respond to the allegations before SEBI decides on any further action.

The case has once again brought attention to Ketan Parekh, who was one of the most controversial figures in India’s stock market history after being linked to the 2001 securities scam. Over the years, Sebi has continued to monitor and investigate activities connected to market manipulation and insider trading involving various operators and entities.

Sebi has initiated legal proceedings against Smallcap World Fund, American Funds Insurance Series Growth-Income Fund, American Funds Fundamental Investors, The Growth Fund of America, AMCAP Fund and Capital Group AMCAP Fund (Lux). Two traders at the Capital Group - James Vincent Cheng and Terence Tsai, who handled around 90 per cent of the trading activity of the firm in India – allegedly shared information about impending trades with Sagaocar.

While the notices do not amount to a final ruling, the development signals Sebi’s continued focus on tightening surveillance around foreign investors and institutional trading practices. The regulator has, in recent years, increased scrutiny of information-sharing systems, dealer conduct, and internal compliance controls at brokerages and investment firms to prevent misuse of confidential market data.