SEBI blocks two firms after Sensex auction trades
The Securities and Exchange Board of India has barred Copthall Mauritius Investment Limited and Mansi Share and Stock Broking Private Limited from the securities market after detecting alleged manipulation during the BSE Sensex closing auction, and ordered the impounding of about ₹3.68 crore in alleged wrongful gains.
The action followed trading on August 13, when weekly derivatives contracts linked to the Sensex expired. SEBI issued an ex-parte interim order on August 19, only six days after the disputed transactions, marking a swift regulatory intervention in the Closing Auction Session, or CAS, introduced at the beginning of the month.
SEBI calculated prima facie wrongful gains of ₹2.96 crore for Copthall and ₹71.64 lakh for Mansi, taking the combined amount to ₹3,67,80,773. Copthall is a Mauritius-based investment entity owned by JPMorgan Chase, while the restriction on Mansi applies to its proprietary trading account.
The case centres on unusually aggressive orders placed in Sensex constituent shares during the closing auction. Copthall allegedly entered large buy orders at prices materially above reference levels, pushing the indicative equilibrium prices of several stocks higher. Its derivatives portfolio included long call and short put positions that stood to gain from an upward movement in the benchmark.
Surveillance data identified three abrupt Sensex movements during the auction, involving swings of 362.02 points, 132.67 points and 405.08 points over intervals ranging from two seconds to 28 seconds. During one two-second surge, Copthall accounted for 99.91% of the relevant buy-order value, while its share was 96.09% during another sharp movement.
Many of those orders were placed close to the permitted upper price boundary and across multiple Sensex constituents within seconds. A substantial proportion was later cancelled after influencing the indicative auction price, strengthening SEBI's preliminary view that the trading pattern had been designed to affect price discovery rather than simply execute genuine investment demand.
Mansi allegedly employed an opposite strategy. The brokerage placed aggressive sell orders in eight Sensex constituents at prices significantly below their reference levels, temporarily suppressing the benchmark's indicative equilibrium price. Its outstanding put-option positions benefited from the downward move. Most of the sell orders were subsequently withdrawn after the relevant derivatives positions had been squared off.
SEBI has not alleged at this stage that Copthall and Mansi acted together. Its preliminary examination indicates that the two entities independently used opposing strategies during the same closing auction, each producing price movements favourable to its own derivatives positions. A detailed investigation remains under way.
Pending that investigation, both entities have been restrained from accessing the securities market and from participating directly or indirectly in equity-market closing auctions. They cannot place, modify or cancel CAS orders until further directions. Restrictions have also been imposed on debits from relevant bank and demat accounts, while disposal of assets requires regulatory permission. The entities have been directed to provide inventories of their assets, investments and accounts within 15 days.
The enforcement action is significant because CAS has been operating only since August 3. The system replaced the earlier method of calculating closing prices of futures-and-options stocks from the volume-weighted average of trades during the final 30 minutes of continuous trading. Under the auction method, orders are accumulated near the close and matched at a single equilibrium price intended to reflect maximum executable volume.
The 20-minute mechanism begins at 3.15 pm and was introduced to improve end-of-day price discovery and bring the market closer to practices used by major global exchanges. The official closing price is particularly important because it affects benchmark calculations, derivatives settlements, portfolio valuations and the net asset values of funds.
Its early implementation has nevertheless produced sharp movements in the Nifty 50 and Sensex around the close, exposing liquidity differences between exchanges and creating challenges for derivatives traders. SEBI Chairman Tuhin Kanta Pandey has ruled out abandoning the system while signalling that operational weaknesses will be addressed.
Regulators are also working with brokers to deepen liquidity during the auction process. Brokers are expected from September to begin accepting orders during the five-minute transition period between 3.15 pm and 3.20 pm, when order entry has so far been unavailable. Exchanges have separately improved visibility of indicative benchmark prices and introduced shorter-duration securities-lending contracts to make hedging and short-selling easier.
The action followed trading on August 13, when weekly derivatives contracts linked to the Sensex expired. SEBI issued an ex-parte interim order on August 19, only six days after the disputed transactions, marking a swift regulatory intervention in the Closing Auction Session, or CAS, introduced at the beginning of the month.
SEBI calculated prima facie wrongful gains of ₹2.96 crore for Copthall and ₹71.64 lakh for Mansi, taking the combined amount to ₹3,67,80,773. Copthall is a Mauritius-based investment entity owned by JPMorgan Chase, while the restriction on Mansi applies to its proprietary trading account.
The case centres on unusually aggressive orders placed in Sensex constituent shares during the closing auction. Copthall allegedly entered large buy orders at prices materially above reference levels, pushing the indicative equilibrium prices of several stocks higher. Its derivatives portfolio included long call and short put positions that stood to gain from an upward movement in the benchmark.
Surveillance data identified three abrupt Sensex movements during the auction, involving swings of 362.02 points, 132.67 points and 405.08 points over intervals ranging from two seconds to 28 seconds. During one two-second surge, Copthall accounted for 99.91% of the relevant buy-order value, while its share was 96.09% during another sharp movement.
Many of those orders were placed close to the permitted upper price boundary and across multiple Sensex constituents within seconds. A substantial proportion was later cancelled after influencing the indicative auction price, strengthening SEBI's preliminary view that the trading pattern had been designed to affect price discovery rather than simply execute genuine investment demand.
Mansi allegedly employed an opposite strategy. The brokerage placed aggressive sell orders in eight Sensex constituents at prices significantly below their reference levels, temporarily suppressing the benchmark's indicative equilibrium price. Its outstanding put-option positions benefited from the downward move. Most of the sell orders were subsequently withdrawn after the relevant derivatives positions had been squared off.
SEBI has not alleged at this stage that Copthall and Mansi acted together. Its preliminary examination indicates that the two entities independently used opposing strategies during the same closing auction, each producing price movements favourable to its own derivatives positions. A detailed investigation remains under way.
Pending that investigation, both entities have been restrained from accessing the securities market and from participating directly or indirectly in equity-market closing auctions. They cannot place, modify or cancel CAS orders until further directions. Restrictions have also been imposed on debits from relevant bank and demat accounts, while disposal of assets requires regulatory permission. The entities have been directed to provide inventories of their assets, investments and accounts within 15 days.
The enforcement action is significant because CAS has been operating only since August 3. The system replaced the earlier method of calculating closing prices of futures-and-options stocks from the volume-weighted average of trades during the final 30 minutes of continuous trading. Under the auction method, orders are accumulated near the close and matched at a single equilibrium price intended to reflect maximum executable volume.
The 20-minute mechanism begins at 3.15 pm and was introduced to improve end-of-day price discovery and bring the market closer to practices used by major global exchanges. The official closing price is particularly important because it affects benchmark calculations, derivatives settlements, portfolio valuations and the net asset values of funds.
Its early implementation has nevertheless produced sharp movements in the Nifty 50 and Sensex around the close, exposing liquidity differences between exchanges and creating challenges for derivatives traders. SEBI Chairman Tuhin Kanta Pandey has ruled out abandoning the system while signalling that operational weaknesses will be addressed.
Regulators are also working with brokers to deepen liquidity during the auction process. Brokers are expected from September to begin accepting orders during the five-minute transition period between 3.15 pm and 3.20 pm, when order entry has so far been unavailable. Exchanges have separately improved visibility of indicative benchmark prices and introduced shorter-duration securities-lending contracts to make hedging and short-selling easier.