India's SEBI Bars JPMorgan Unit and Local Broker Over Sensex Closing-Auction Manipulation

India's Securities and Exchange Board of India barred two trading entities from the country's securities markets this week after accusing them of manipulating the Sensex index during a brand-new closing-price mechanism.

SEBI Whole Time Member Kamlesh Chandra Varshney issued an ex-parte interim order on Wednesday, August 19, against Copthall Mauritius Investment Ltd, a unit of JPMorgan Chase & Co., and Mansi Share and Stock Broking Pvt Ltd, according to Moneycontrol and Livemint. The regulator ordered the two firms to deposit a combined 3.68 crore rupees in alleged wrongful gains, and barred them from accessing the market pending further proceedings.

What SEBI says happened

The case centers on August 13, a weekly expiry day for Sensex derivatives contracts. India rolled out a new Closing Auction Session on August 3, just ten days before the alleged manipulation, according to NDTV Profit. The CAS runs from 3:20 to 3:30 p.m., after normal trading ends at 3:15 p.m. Under the system, buy and sell orders are pooled during this window and matched at an equilibrium price meant to produce a cleaner, more reliable closing price, according to Livemint.

SEBI's surveillance systems flagged three sharp movements in the Sensex's Indicative Equilibrium Price during the CAS window on August 13 — swings of 362.02 points, 132.67 points and 405.08 points, occurring in periods ranging from about two seconds to 28 seconds, according to Moneycontrol. The Sensex ultimately closed at 78,080, a level SEBI said was roughly 240 points higher than where it should have landed based on comparable movement in the Nifty.

The regulator said Copthall was behind most of the aggressive buying, accounting for 99.91% of buy-order value during one two-second spike and 96.09% during another, according to Moneycontrol. Copthall placed large orders near the maximum permissible 3% ceiling above the reference price across nearly all Sensex constituents, then cancelled large portions of those orders shortly after the price moved, per Livemint. SEBI said Copthall held derivatives positions — including long call and short put positions in Sensex options — that stood to benefit from a higher index close.

Mansi Share and Stock Broking allegedly took the opposite approach, placing large sell orders substantially below reference prices across eight Sensex stocks, then cancelling nearly all of them within seconds, according to Moneycontrol and NDTV Profit. SEBI said Mansi's put-option positions would have benefited from a lower Sensex close.

SEBI calculated the alleged wrongful gains at 2.96 crore rupees for Copthall and 71.65 lakh rupees for Mansi, according to Livemint and Moneycontrol. The order does not allege the two firms acted in concert; SEBI's prima facie assessment is that each independently pushed the index in a direction favorable to its own derivatives positions.

A fast regulatory response — but not a final ruling

The order came within six days of the alleged trades, which Moneycontrol described as a swift turnaround for the regulator. According to Livemint, this marks the first time SEBI has launched formal proceedings against any entity trading in the closing auction session.

Varshney, quoted by Moneycontrol, said manipulation or unfair practices that disturb fair price discovery in the CAS "has to be dealt with sternly by the regulator," warning that such conduct, if it continued or spread to other market participants, could "undermine the integrity of the CAS mechanism" and "completely disrupt the orderly functioning of the securities markets." He added that such practices carry serious consequences for participants in derivatives markets, including retail investors.

SEBI has restrained both entities from accessing the securities markets and from participating in the CAS, restricted debits from their bank and demat accounts, barred them from disposing of assets without its permission, and directed them to submit a full inventory of their assets and accounts within 15 days, according to Moneycontrol.

Copthall and Mansi Share have 21 days to respond to SEBI's allegations and request a personal hearing, according to Business Today. The regulator said its detailed investigation will continue.