India's market regulator, the Securities and Exchange Board of India (SEBI), has prohibited Copthall Mauritius Investment Ltd., a Mauritius-based unit of JPMorgan Chase & Co., from participating in the capital market. This action was taken due to alleged manipulative trading within India's recently launched auction-based system for determining share prices. SEBI impounded 37 million rupees, equivalent to $386,000, which it identified as wrongful gains made by Copthall Mauritius Investment Ltd. and a local firm, Mansi Share and Stock Broking Ltd.
The initial order, published late Wednesday by SEBI board member Kamlesh Varshney, stated that Copthall and Mansi Share executed manipulative trades on August 13 during the closing auction window. The alleged purpose was to influence the indicative equilibrium price of the BSE Sensex Index, thereby benefiting their options positions on the benchmark index. This represents SEBI's first major enforcement action against an international firm regarding the manipulation of the new closing auction system, which was introduced earlier this month for over 200 stocks in India's $5.1 trillion stock market. Last year, SEBI accused the US-based trading firm Jane Street Group of similar misconduct, which the firm denied and is currently appealing.
The new auction system, designed to align India with global peers and reduce manipulation, has faced criticism from traders due to unexplained spikes in stock benchmarks during closing sessions. Despite these challenges and concerns about liquidity, SEBI Chairman Tuhin Kanta Pandey has indicated that the new system is here to stay, though the regulator is open to adjustments. According to Tejas Shah, head of derivatives at Equirus Securities Pvt., the lack of liquidity on the BSE might have contributed to the incident, but he expects the regulator to maintain the framework. BSE's shares experienced a 1.8% gain in early Mumbai trading after the news, though they had previously slid over 7% this month due to concerns that the new auction system was reducing derivatives trading on its platform.
The 46-page order detailed that the trading by Copthall and Mansi Share was "highly unusual" and impacted their expiry-day Sensex options positions. Copthall allegedly placed significant buy orders, accounting for over 90% of all orders in some securities, totaling 3.17 million shares, and subsequently canceled nearly a third of them. Similarly, Mansi Share placed sell orders for 1.28 million shares before scrapping almost all of them. SEBI alleged that these patterns appeared manipulative because the firms canceled large portions of orders placed near the highest allowed price band during the auction window, thus influencing indicative closing prices without fully executing the trades. Varshney stated that these actions allowed them to avoid losses or illicitly profit from derivatives trades that otherwise would have expired worthless. Varshney has requested a detailed examination of these trades, emphasizing a speedy completion without influence from his initial findings. Both entities have 21 days to respond to the allegations.
