India's market regulator, the Securities and Exchange Board of India (SEBI), has banned a Mauritius-based unit of JPMorgan Chase & Co., Copthall Mauritius Investment Ltd., from the capital market. This action comes due to alleged manipulative trading in India's newly introduced auction-based system for share price discovery. SEBI impounded 37 million rupees ($386,000), identifying these funds as wrongful gains made by Copthall Mauritius Investment Ltd. and local firm Mansi Share and Stock Broking Ltd.
This marks the first enforcement action regarding alleged manipulation of India's new closing auction system for stock prices. The SEBI order, issued by board member Kamlesh Varshney, claims that Copthall and Mansi Share engaged in manipulative trades during the closing auction window on August 13. Their aim was to influence the indicative equilibrium price of the BSE Sensex Index, thereby benefiting their options positions on the benchmark. The regulator's findings allege that Copthall placed buy orders for 3.17 million shares, nearly 12 times that of the next largest player, and subsequently canceled almost a third of these orders. Mansi Share placed sell orders for 1.28 million shares and then canceled almost all of them.
SEBI alleges that the trading patterns were manipulative because large portions of the orders were placed near the highest allowed price band and then canceled, influencing indicative closing prices without full execution. This allowed the firms to avoid losses or wrongfully profit from derivatives trades that would otherwise have expired worthless. This action against JPMorgan's unit follows a similar accusation against US-based trading firm Jane Street Group last year, which is currently appealing the charges. The new auction-based system, intended to reduce manipulation, has faced criticism from traders due to unexplained spikes in stock benchmarks during closing sessions. Despite these challenges, SEBI Chairman Tuhin Kanta Pandey has stated the system will remain, though the regulator is open to adjustments.
