India’s capital markets regulator, the Securities and Exchange Board of India (SEBI), has reportedly issued show cause notices to six foreign portfolio investors (FPIs) managed by US-based investment giant Capital Group, alleging lapses in maintaining confidentiality of trade-related information that may have enabled an extensive front-running operation linked to market operator Ketan Parekh and Singapore-based trader Rohit Salgaocar.
The development marks the first time Capital Group has been directly identified by SEBI in connection with the alleged front-running investigation. Earlier references in regulatory proceedings reportedly described the entity only as a “large client.” Capital Group is among the world’s largest asset managers and manages assets exceeding $3.3 trillion globally.
According to the allegations, SEBI has raised concerns over potential failures in internal controls and due diligence mechanisms intended to safeguard confidential trading information. The regulator is examining whether sensitive information relating to large institutional trades may have been improperly shared, allowing individuals associated with the network to establish market positions in advance and profit from subsequent movements in stock prices.
The regulator’s allegations suggest that two traders associated with Capital Group allegedly shared details of impending trades with Rohit Salgaocar. The information was then allegedly passed further within the network, including to Ketan Parekh. Such advance access to trade information could enable participants to take positions before institutional orders are executed, a practice commonly referred to as front-running.
SEBI believes that this chain of information-sharing may have helped the network build positions ahead of Capital Group transactions, thereby benefiting from anticipated price movements generated by large institutional investments.
The investigation reportedly covers a period from January 2021 to June 2023. The regulator is said to have relied on a substantial evidentiary trail, including digital communications, Bloomberg chat records, and WhatsApp conversations, to reconstruct the alleged information flow and trading activities.
Legal proceedings have reportedly been initiated against several Capital Group-linked investment vehicles, including Smallcap World Fund, American Funds Insurance Series Growth-Income Fund, American Funds Fundamental Investors, The Growth Fund of America, and AMCAP Fund entities.
The matter is significant not only because of the scale of the institutions involved but also because it raises broader concerns regarding the handling of confidential institutional trading information and the adequacy of compliance systems within global asset management firms operating in India.
Front-running has long been viewed by regulators as a serious market misconduct issue because it potentially undermines market integrity and erodes investor confidence. Large institutional transactions can materially influence stock prices, and any unauthorized access to such information can create unfair trading advantages.
While SEBI’s issuance of a show cause notice indicates the commencement of adjudicatory proceedings, it does not amount to a final determination of liability. The concerned entities and individuals would have an opportunity to respond to the allegations and present their explanations before any final regulatory action is taken.
Capital Group reportedly declined to comment on the matter, while no immediate response from SEBI was available regarding the proceedings.
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