- SEBI banned JPMorgan unit Copthall Mauritius for alleged market manipulation in India
- The regulator seized 37 million rupees as wrongful gains from Copthall and Mansi Share
- Trades on August 13 influenced BSE Sensex closing prices, benefiting their options positions
India's securities regulator banned a Mauritius-based unit of JPMorgan Chase & Co. from its capital markets, the first enforcement action over alleged manipulation of the country's new closing auction for stock prices.
The Securities and Exchange Board of India impounded 37 million rupees ($386,000), which it described as wrongful gains made by JPMorgan unit Copthall Mauritius Investment Ltd. and local firm Mansi Share and Stock Broking Ltd., according to an initial order published late Wednesday.
The order by SEBI board member Kamlesh Varshney alleged that Copthall and Mansi Share executed manipulative trades during the closing auction window on August 13 to influence the indicative equilibrium price of the BSE Sensex Index, benefiting their options positions on the benchmark.
A spokesperson for JPMorgan declined to comment, while Mansi Share didn't respond to an email request for comment.
SEBI's finding against the JPMorgan unit represents one of the first major actions over market manipulation involving an international firm since it accused US-based trading firm Jane Street Group of similar misconduct last year. The Wall Street firm denied the charges and is pursuing an appeal in an Indian court seeking access to additional documents.
Wednesday's order highlights the challenges facing SEBI after it introduced an auction-based system earlier this month for more than 200 stocks in the $5.1 trillion stock market. Intended to align India with global peers and reduce the potential for manipulation, the system has faced backlash from traders after unexplained spikes in the stock benchmarks during closing sessions.
"The reason this happened on the BSE was because of the lack of liquidity," said Tejas Shah, head of derivatives at Equirus Securities Pvt. While the crackdown raises concerns about the process, the regulator is likely to stick with the framework, he said.
That view echoes recent comments from SEBI Chairman Tuhin Kanta Pandey, who said the new system is here to stay even as the regulator is open to tweaks and has stepped up meetings with stakeholders last week.
Shares of the BSE, which maintains the Sensex index, gained as much as 1.8 per cent in early Mumbai trading. The stock has slid over 7 per cent this month on concern the new auction system is reducing derivatives trading on its platform.
Copthall has in the past been one of the primary investment vehicles for JPMorgan and its clients in India, though it has since become smaller. The Mauritius entity once held Indian stocks worth more than 55 billion rupees, according to data platform Trendlyne.com. Those holdings have shrunk to less than 380 million rupees as of June 30, the data show.
The 46-page order on Copthall and Mansi Share alleged that both entities' trading in the underlying securities during the closing auction was "highly unusual" and had a corresponding impact on their expiry-day Sensex options positions.
The firms allegedly placed outsized orders in Sensex stocks during the closing auction, accounting for more than 90 per cent of all orders in some securities identified by the regulator. On Aug. 13, Copthall placed buy orders totaling 3.17 million shares, nearly 12 times those of the next biggest market player, SEBI said. The firm later canceled almost a third of those orders.
Mansi Share placed total sell orders for 1.28 million shares before scrapping nearly all of them, SEBI said.
SEBI alleged the trading patterns appeared manipulative because both firm canceled large portions of the orders during the auction window, which were placed near the highest allowed price band. That influenced indicative closing prices without fully executing the trades, SEBI said.
"These large buy orders and sell orders, which were placed and then canceled, allowed them to avoid losses or wrongfully profit themselves from positions in derivatives trades that otherwise would have expired worthless," SEBI's Varshney wrote.
Varshney has sought a detailed examination of the trades by Copthall and Mansi Share, which he said should be completed speedily and without being influenced by the findings of his order. Both entities have 21 days to respond to the allegations, including by seeking a personal hearing.
The chaotic start to the price-setting mechanism -- conducted during the final 15 minutes of trading -- has stoked concerns among traders about dwindling liquidity during the auction window. Average turnover during the auction has shrunk 40 per cent from levels recorded in the final 15 minutes of trading under the previous regime.
"We don't know yet if there were more cases," said Amit Kumar Gupta, founder of New Delhi-based investment firm Fintrekk Capital. "But, such a swift decision in a short period of time tells me that SEBI is monitoring it closely and unlikely to be repeated in future."
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
