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., and local firm Mansi Share and Stock Broking Ltd. from the capital market. The ban follows alleged manipulative trading during India’s newly introduced auction-based system for share price discovery. SEBI impounded 37 million rupees ($386,000), which it described as wrongful gains made by both entities.
The alleged manipulation occurred on August 13, when weekly derivatives contracts linked to the Sensex expired. Copthall Mauritius Investment is accused of placing large buy orders across all Sensex stocks at prices significantly above market levels during the Closing Auction Session (CAS), accounting for 86.6% of the gross buy value in Sensex constituents during that period. These orders, some of which were later cancelled, allegedly aimed to inflate the Sensex closing value, benefiting Copthall's expiring options positions and generating gains of 29.6 million rupees ($309,607).
Concurrently, Mansi Share and Stock Broking allegedly placed large sell orders at lower prices and then cancelled most of them, temporarily pushing the index down. Mansi had open put option positions that would have benefited from a downward movement in Sensex, leading to alleged wrongful gains of 7.16 million rupees ($74,817). SEBI did not allege the two entities acted in concert but noted their opposite, aggressive strategies impacting prices.
The regulator has barred both firms from accessing the securities market and participating in the CAS while the investigation continues. This swift action by SEBI is seen by market watchers as a strong warning to deter manipulation in the country’s new closing stock auction system. The new auction system, intended to align India with global peers and reduce manipulation, has faced challenges due to thin liquidity, making it susceptible to significant price swings from relatively small orders.
Copthall has 21 days to respond to the allegations and can challenge the order before the Securities Appellate Tribunal. JPMorgan declined to comment on the matter.
