Prevention of Fraudulent and Unfair Trade Practices (PFUTP)
The SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 — commonly known as PFUTP — is the primary enforcement framework through which SEBI prosecutes market manipulation, front-running, misleading disclosures, and other fraudulent conduct in Indian securities markets.
The PFUTP Regulations are among the most frequently invoked enforcement tools in SEBI's regulatory arsenal. They define and prohibit a wide range of fraudulent and unfair trade practices in relation to securities, including market manipulation, price rigging, misleading statements, insider trading facilitation, and mis-selling of securities.
The key definitions under PFUTP are broad. A fraudulent practice under Regulation 3 includes any act that creates a false or misleading appearance of trading, maintains artificial prices, or employs any scheme to defraud in connection with the purchase or sale of securities. Regulation 4 covers unfair trade practices, including inducing investors through false statements, circular trading, and front-running by intermediaries.
SEBI can initiate enforcement action under PFUTP through its quasi-judicial process. After investigation, SEBI issues a Show Cause Notice (SCN) to the accused and holds a hearing. The adjudicating officer can impose monetary penalties, while SEBI's Whole Time Members can pass orders directing disgorgement of profits, suspension of trading, debarment from markets, or recovery of ill-gotten gains. Appeals against SEBI orders lie with the Securities Appellate Tribunal (SAT), and further with the Supreme Court.
Penalty provisions under PFUTP can result in fines of up to Rs 25 crore or three times the profits made from the violation, whichever is higher. SEBI has significantly enhanced its surveillance and enforcement capabilities using algorithmic surveillance tools, call record analysis, and data analytics to detect suspicious trading patterns.
High-profile PFUTP enforcement actions have targeted price manipulators of SME and illiquid stocks, brokers involved in synchronised trades, and promoters accused of rigging prices around preferential allotments. For investors, PFUTP orders are publicly available on SEBI's website and serve as a caution on the integrity of specific market participants.