India's securities regulator, the Securities and Exchange Board of India (SEBI), has issued a ban against a Mauritius-based unit of JPMorgan Chase & Co., Copthall Mauritius Investment Ltd., and local firm Mansi Share and Stock Broking Ltd. The ban stems from allegations of market manipulation within the country's new auction-based system for determining share closing prices.
SEBI has impounded ₹3.7 crore, identified as wrongful gains made by the two firms. According to an initial order issued by the regulator, the alleged manipulative trades occurred during the closing auction window on August 13.
Manipulation of Closing Auction Prices
SEBI board member Kamlesh Varshney stated that the firms executed manipulative trades with the intent to influence the indicative equilibrium price of the BSE Sensex Index. This manipulation was allegedly designed to benefit their options positions, which would have otherwise expired worthless.
The 46-page order details how Copthall Mauritius and Mansi Share placed substantial buy and sell orders in Sensex stocks during the closing auction, accounting for over 90% of all orders in some securities. Crucially, they later cancelled large portions of these orders without full execution. This tactic reportedly affected indicative closing prices, allowing the firms to avoid losses or profit from derivatives trades linked to the Sensex's expiry-day positions.
New System Aims to Curb Manipulation
Earlier this month, SEBI introduced the auction-based system to determine closing prices for over 200 stocks in India's $5.1 trillion stock market. The system was implemented to align India with global market practices and specifically to reduce opportunities for manipulation. However, the system has faced criticism from traders following unexplained spikes in stock benchmarks during closing sessions.
This action by SEBI follows a similar accusation made a year ago against US proprietary trading firm Jane Street Group, which has denied the allegations and is currently appealing in an Indian court.
Next Steps for Accused Firms
Both Copthall Mauritius Investment Ltd. and Mansi Share and Stock Broking Ltd. have been given 21 days to respond to SEBI’s allegations and request a personal hearing regarding the matter.