India’s securities regulator, the Securities and Exchange Board of India (SEBI), issued an interim order against JPMorgan unit Copthall Mauritius Investment Ltd. and local brokerage firm Mansi Share and Stock Broking Ltd., banning them from the capital market. This action, taken within six days of the alleged manipulative trading on August 13, is a significant departure from past regulatory timelines, which often took years. Market watchers interpret this rapid response as a stern warning to other traders against manipulating India's new closing stock auction system.
The ban on Copthall and Mansi Share will be lifted once they repay nearly ₹3.7 crore (approximately $386,000) in combined unlawful gains to the regulator. SEBI's 46-page order, issued by board member Kamlesh Varshney, alleged that Copthall and Mansi Share executed manipulative trades during the closing auction window to influence the indicative equilibrium price of the BSE Sensex Index. These actions were purportedly aimed at benefiting their options positions on the benchmark. Specifically, Copthall accounted for a significant 86.6% of gross buy value in Sensex constituents during the Closing Auction System (CAS).
The alleged manipulative patterns involved canceling large portions of orders placed near the upper end of the permitted price band during the closing auction. This influenced indicative closing prices without the orders being fully executed. For instance, Copthall placed buy orders totaling 3.17 million shares, nearly 12 times that of the next largest market player, and later canceled almost a third of these orders. Similarly, Mansi Share placed large sell orders for 1.28 million shares before scrapping nearly all of them. SEBI stated that the design of the new system, which focuses on a discrete auction window, helped to swiftly uncover the alleged wrongdoing. This swift action reinforces SEBI's commitment to the success of the Closing Auction System, a key reform for India's stock market.
While the new auction system has faced challenges, including pushback from traders due to unexplained spikes in stock benchmarks during closing sessions and concerns about thin liquidity, SEBI's prompt and decisive action is seen as crucial for its credibility. Dhiraj Relli, managing director of HDFC Securities Ltd., noted that this is a significant change in market structure and SEBI's action sends an unequivocal signal that the CAS is here to stay. The regulator highlighted that such manipulation could damage fair price discovery and harm investors who trade in derivatives or invest through mutual funds.
