Policing the Players

Sebi is coming down hard on broking firms that collude with market entities that open mule accounts to carry out pump and dump activities

- ASHISH RUKHAIYAR

WHAT IS A MULE? Well, it’s a hybrid of a donkey and a horse typically used to carry or move things from one place to another. The word is also used as a slang to describe a person who smuggles things. And then there are mule accounts in the capital markets that too “carry” or “move” stuff, but they do it with the ulterior motive of artificially influencing stock prices.

That is the reason they are high on the regulatory radar, with Securities and Exchange Board of India (Sebi) Chairperson Madhabi Puri Buch saying that rules regarding front running need to be tightened to address the menace of mule accounts.

Simply put, mule accounts refer to those trading accounts that are opened to carry out front running activities, or temporarily park shares, before they can be used to perform so-called ‘pump and dump’ activities. Here, certain entities collude with brokers to jack up stock prices and then, sell or dump them in the market after gullible investors have been hoodwinked into buying those shares in the wake of the swift price rise. All of this essentially falls in the realm of manipulating stock prices. And mostly, such accounts are used by entities other than those in whose name the accounts are actually registered.