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The Securities and Exchange Board of India has acted against two entities over alleged Sensex closing auction session manipulation. The regulator issued its first formal order linked to the new CAS framework.
SEBI barred Copthall Mauritius Investment from the securities market until further orders. It also stopped Mansi Share and Stock Broking from trading through its proprietary account. The regulator ordered the impounding of combined gains worth about Rs. 3.68 crore.
SEBI alleges that Copthall made wrongful gains of Rs. 2.96 crore through trades placed on August 13. Mansi allegedly gained another Rs. 71.65 lakh. The regulator has directed both entities to appear before investigating officials within 21 days.
The action followed a warning from SEBI Chairman Tuhin Kanta Pandey earlier on Wednesday. He said the regulator could detect manipulation more effectively under CAS than under the earlier volume-weighted average price system.
“We want to make one thing clear. If people manipulate CAS, then we will take strict action and do it immediately,” Pandey told reporters.
SEBI launched the closing auction session in India on August 3. The system collects buy and sell orders during a dedicated end-of-day period. It then calculates an equilibrium price that allows the highest possible trading volume.
SEBI reviewed activity in Sensex stocks during the August 13 closing auction. That session also coincided with the weekly expiry of Sensex derivatives contracts. The regulator found three sudden movements in the indicative equilibrium price during the session.
The Sensex initially jumped 362 points within two seconds. It later moved 132.67 points in 12 seconds and 405.08 points in 28 seconds. SEBI linked most of the aggressive buying during these movements to Copthall.
During the first price spike, Copthall accounted for 99.91% of the Rs. 66.64 crore buy-order value. The firm placed orders across all 30 Sensex stocks at prices around 3% above their reference levels.
Copthall later represented 96.09% and 85.21% of the buy-order value during the other two spikes. It subsequently cancelled buy orders worth Rs. 98.12 crore across the 30 index stocks.
SEBI examined the entities’ CAS orders alongside their Sensex derivatives positions. According to the order, a Sensex move from 77,820 to 78,080 increased the payoff on some Copthall call options. The movement also reduced payments linked to certain put positions.
Mansi used a different trading pattern. The broker placed sell orders covering 12.65 lakh shares across eight Sensex companies. Those orders carried a combined value of Rs. 143.44 crore and quoted prices below the reference levels.
Mansi cancelled the full block of orders within four seconds. The cancellation led to a 232.96-point rise in the indicative equilibrium price, according to SEBI. The broker also exited certain Sensex put positions while its aggressive sell orders remained active.
“The sell orders for five minutes were prima facie meant to suppress the IEP rather than performing a legitimate sell transaction,” SEBI said in its order.
The regulator also found that both entities had opened positions in Sensex options expiring on August 20. SEBI cited the risk of repeated conduct while ordering immediate restrictions on their market activity.
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