The Securities and Exchange Board of India (Sebi) could soon issue interim orders imposing a market ban on the two former fund managers of Axis Mutual Fund (MF) for suspected front-running of trades, said people with knowledge of the development.
"The market regulator has gathered prima facie evidence that demonstrates that the duo has violated the integrity of the market.
"While a detailed investigation is still pending in the matter, Sebi could take action under Section 11 (4) to prevent further harm to the investors and the securities market,” said a source.
Sebi passes interim orders in rare instances, when it thinks action is needed to protect the integrity of the market.
Over the past few weeks, Sebi has carried out extensive search and seizure operations across multiple cities to gather evidence on alleged front-running.
The regulator has seized various records, documents, and digital evidence from phones, laptops, and hard drives used by 16 suspected entities.
The regulator has also been receiving inputs from its internal surveillance alert systems and also from the National Stock Exchange (NSE) on suspected front-running of trades at Axis MF.
E-mails sent to Sebi and Axis MF did not elicit any response.
Last month, Axis MF asked fund managers Viresh Joshi and Deepak Agarwal to leave the organisation due to alleged irregularities.
The regulator, through an interim order, plans to restrain the duo from buying, selling, or dealing in securities, either directly or indirectly. A source said the regulator is in the process of ascertaining illicit gains made by the two and other connected entities.
This will enable it to impound the bank accounts of these entities to the extent of alleged ill-gotten gains.
Before terminating the duo, Axis MF had suspended both Agarwal and Joshi pending a probe.
The fund house had reassigned responsibilities to other fund managers for seven schemes.
The fund house has also roped in two agencies to investigate the front-running case.
The agencies have been tasked with identifying lapses, ascertaining if other individuals were involved in any way.
Joshi has been associated with Axis AMC since 2009 and was the chief trader and fund manager. His core responsibilities included managing arbitrage fund and derivatives trading strategies.
He used to oversee Axis Arbitrage Fund, Axis Technology ETF, and Axis Consumption ETF. Agarwal joined Axis AMC in 2015 as a research analyst.
He was promoted to assistant fund manager for equity in 2020. From 2021, he managed the Axis Quant Fund and the Axis Consumption ETF.