Sebi Acts In 6 Days Against JPMorgan Unit Over Alleged Market Manipulation; What Happened

Sebi has barred Copthall Mauritius Investment and Mansi Share and Stock Broking from the capital market over alleged manipulation during the new Closing Auction System.

The action comes at a time when India's new Closing Auction System (CAS) is still being adopted by market participants.

Source : PTI

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Key points generated by AI, verified by newsroom

• SEBI quickly sanctioned JPMorgan unit, a local broker.
• Allegedly manipulated trades within the new closing auction mechanism.
• Entities barred; ordered repayment of 37 million unlawful gains.

The Securities and Exchange Board of India (Sebi) has moved within days against a JPMorgan Chase & Co. unit and a local brokerage over alleged manipulation of trades during the stock market's new closing auction mechanism, in a move that market observers say could serve as a warning to traders.

Sebi's interim order against Copthall Mauritius Investment Ltd. and Mansi Share and Stock Broking Ltd. came six days after the alleged trading activity on August 13. The speed of the action marks a departure from several earlier market-manipulation cases, where regulatory proceedings took considerably longer to reach an interim order.

Former Sebi board member Ashwani Bhatia described the action as "unprecedented", saying the regulator needed to identify potentially manipulative activity quickly as market participants adjust to the new system, reported Business Standard.

What Sebi Alleged In The JPMorgan Unit Case

According to Sebi's 46-page order, Copthall and Mansi Share allegedly carried out trades during the closing auction window that were intended to influence the indicative equilibrium price of the BSE Sensex Index.

The regulator alleged that the positions taken by the entities benefited their options positions linked to the benchmark.

Sebi also flagged the cancellation of a substantial portion of orders placed near the upper end of the permitted price band during the closing auction. According to the regulator, the trading activity affected indicative closing prices even though the orders were not fully executed.

The interim order has barred Copthall and Mansi Share from the capital market. The restrictions will be lifted once the entities repay nearly ₹37 million, or around $386,000, in combined alleged unlawful gains to Sebi, according to the order.

Why The Closing Auction System Is Under Focus

The action comes at a time when India's new Closing Auction System (CAS) is still being adopted by market participants.

The system, introduced earlier this month, is among the significant recent changes to India's market structure and is intended to bring the country's closing process closer to global practices.

Its introduction has, however, faced resistance from some traders following unexplained movements in stock benchmarks during closing sessions.

Sebi Chairman Tuhin Kanta Pandey said earlier this week that the new system would remain in place, while indicating that the regulator was open to making adjustments.

The swift action against the alleged trades has therefore drawn attention because of the timing as well as the nature of the trading activity.

New System May Make Suspicious Orders Easier To Track

Market observers said the structure of the new auction process may have helped Sebi identify the alleged activity quickly.

Under the previous system, attempts to influence closing prices could require surveillance across a longer period of continuous trading. The auction mechanism instead creates a defined window during which regulators can examine orders as they are placed, changed and cancelled while the indicative equilibrium price is being determined.

JPMorgan's Local Operations Not Directly Affected

The entity named in Sebi's order, Copthall Mauritius Investment Ltd., is separate from J.P. Morgan India Pvt. Ltd.

J.P. Morgan India is registered with Sebi as a stock broker and merchant banker. As a result, the action against the Mauritian entity does not directly affect JPMorgan's activities in India that are primarily conducted through its local unit.

Sebi's Faster Action Draws Comparison With Jane Street Case

The speed of the proceedings has also been viewed against the backdrop of Sebi's earlier investigation into alleged market manipulation involving Jane Street Group.

In that case, Sebi began investigating the proprietary trading firm more than a year before issuing its initial order, which was disclosed last year.

Jane Street has denied the allegations and is pursuing an appeal in an Indian court seeking access to additional documents.

The contrasting timelines have highlighted the regulator's decision to act much faster in the latest case involving the new closing auction mechanism.

The closing auction system has faced challenges in its initial weeks, including unexpected price movements and concerns around liquidity. The latest disclosure of alleged misconduct has added another issue for market participants as they adapt to the revised market structure.