India's Securities and Exchange Board of India (SEBI) has banned Copthall Mauritius Investment Ltd., a JPMorgan Chase & Co. unit, from capital markets and impounded 37 million rupees ($386,000) for alleged manipulative trading during the new closing auction for stock prices. SEBI claims Copthall, along with local firm Mansi Share and Stock Broking Ltd., executed trades on August 13 to influence the indicative equilibrium price of the BSE Sensex Index, benefiting their options positions. JPMorgan declined to comment, while Mansi Share did not respond to inquiries.
This action follows SEBI's previous accusation of market manipulation against US-based trading firm Jane Street Group last year. Jane Street denied the charges and is appealing in an Indian court. In addition to the market manipulation probe, India's income tax department is recommending denying Jane Street tax benefits under a treaty with Singapore, suggesting profits recorded in India should be taxed as capital gains. The tax authorities are considering invoking General Anti-Avoidance Rules (GAAR) due to allegations that Jane Street used Indian entities for intra-day cash equity trades to circumvent regulations and optimize taxes via its Singapore FPI.
SEBI's crackdown highlights challenges with the new auction-based system for over 200 stocks in India's $5.1 trillion market, introduced to align with global standards and reduce manipulation. The system has faced backlash from traders due to unexplained spikes in stock benchmarks and a 40% drop in average turnover during the auction window. Despite concerns, SEBI Chairman Tuhin Kanta Pandey affirmed the new system will remain, though the regulator is open to tweaks and has increased stakeholder meetings.
The allegations against Copthall involve placing outsized orders in Sensex stocks during the closing auction, accounting for over 90% of all orders in some securities. On August 13, Copthall placed buy orders for 3.17 million shares, nearly 12 times the next biggest player, and later canceled almost a third. Mansi Share placed sell orders for 1.28 million shares and then canceled nearly all. SEBI alleged these patterns were manipulative, influencing indicative closing prices without full execution, allowing the firms to avoid losses or profit from derivatives positions that would have otherwise been worthless.
