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New Delhi: A new mechanism designed to make stock closing price mechanism more transparent has itself become the centre of a market-manipulation case, with SEBI alleging that aggressive orders in Sensex constituents were used to influence the index's closing level and generate gains in expiry-day options.
The capital markets regulator SEBI has passed an ex-parte interim order against Copthall Mauritius Investment Ltd, an affiliate of JP Morgan Chase, and Mansi Share and Stock Broking Ltd over trading during the Closing Auction Session (CAS) on the BSE on August 13, the weekly expiry day for Sensex derivatives.
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SEBI has impounded a combined Rs 3.68 crore in alleged wrongful gains and directed the banks and the depositories to ensure that debits in the accounts may also be allowed for amounts available in the account in excess of the amount to be impounded.
The Securities and Exchange Board of India (SEBI) introduced the CAS from August 3, 2026, in a phased manner. It initially covered cash-market stocks on which derivative contracts are available.
Under the mechanism, normal trading in covered stocks halts at 3:15 pm. A reference price is then calculated between 3:15 pm and 3:20 pm. The auction starts at 3:20 pm and is subject to random closure between 3:28 pm and 3:30 pm.
During this window prices of Sensex constituents can move up to 3 per cent from the reference price. Thereafter, by 03:35 pm, a single equilibrium price is discovered at which the maximum quantity of shares can be executed.
For an index, the closing price is based on the closing prices of its constituents. That price is important because the settlement price for the underlying index on expiry.
The mechanism was barely two weeks old when the alleged manipulation took place.
The Sensex reference price on August 13 was 77,829.60. The index eventually closed at 78,080, having seen three sharp, short-lived spikes during the auction window: Between 3:20:41 pm and 3:20:43 pm, the Sensex rose 362.02 points, from 77,661.40 to 78,023.42, in about two seconds.
Between 3:24:08 pm and 3:24:20 pm, it rose a further 132.67 points in around 12 seconds.
Between 3:25:49 pm and 3:26:17 pm, it jumped 405.08 points in 28 seconds.
SEBI's surveillance found Copthall was the dominant buyer during the sharp upward movements.
During the first spike, 88 buy orders were placed in just two seconds.
Copthall accounted for about Rs 66.58 crore, or about 99.91 per cent, of that value. All 32 of its limit-buy orders were placed at 3 per cent above the reference price and spread across all Sensex constituents.
In the second spike, Copthall accounted for about Rs 126.59 crore, or 96.09 per cent, of total buy-order value, while during the third, its share was about Rs 98.12 crore, or 85.21 per cent. The orders were again placed at 3 per cent above the reference price across all Sensex stocks.
However, Mansi Share and Stock Broking followed a different path.
SEBI said the stock brokers' orders suppressed the Sensex IEP for around four to five minute, with the downward pressure released when the orders were cancelled.
SEBI's order, passed by whole-time member Kamlesh Chandra Varshney, alleges the two entities used large, aggressive buy and sell orders in Sensex constituent stocks to influence the Indicative Equilibrium Price (IEP) -- and, through it, the final closing price -- to benefit their own derivatives positions.
The regulator did not examine the large cash-market orders in isolation. It looked at their size, price, timing, concentration across Sensex constituents, impact on the IEP, subsequent cancellation and the participants' concurrent Futures & Options positions.
Copthall had outstanding long call and short put positions in Sensex options. SEBI's prima facie view is that the aggressive buying in the underlying stocks helped push the index higher and benefitted those positions.
Meanwhile, Mansi had open Sensex put options. SEBI said the broker's aggressive selling in eight constituents artificially suppressed the IEP for about five minutes. After squaring off its put options to its advantage, the stock broker cancelled the sell orders.
The regulator said this sequence indicated that the orders were prima facie not bonafide and were intended to influence the IEP and benefit the outstanding options positions. SEBI also noted that the examination or the evidence does not prima facie indicate that the entities acted in concert.
SEBI has estimated prima facie wrongful gains of Rs 2.96 crore for Copthall and Rs 71.65 lakh for Mansi, totalling Rs 3.68 crore. It has directed:
Impounding of the wrongful gains, to be placed in fixed deposits with a lien in SEBI's favour.
A prohibition on both entities from participating in the CAS in the equity segment, directly or indirectly, including placing, modifying or cancelling orders during the auction window, until further orders.
A restraint for both entities from accessing the securities market more broadly.
SEBI said immediate directions were necessary because both the entities had already built outstanding positions in the next weekly Sensex options contract, due to expire on August 20.
The regulator flagged the risk of a recurrence of the same conduct if the entities were allowed to continue participating in CAS.
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This is an interim, ex-parte order -- passed without hearing the noticees first, as is standard in urgent SEBI enforcement matters. A detailed investigation/examination by SEBI is required to be done in the instant matter, with respect to violations committed by the entities and other suspects.
"The same may be completed expeditiously without being influenced by the prima facie findings in this order," the regulator said.
Both Copthall and Mansi Share and Stock Broking have 21 days to file their replies and objections, if any, to this order and may also may seek a personal hearing.
The order is SEBI's first enforcement action under the CAS framework and comes at a moment for the new mechanism, introduced to align India's closing-price discovery process with global practice.
SEBI's Chairperson Tuhin Kanta Pandey had, hours before the order, warned that any attempt to "defame" the newly introduced CAS through manipulation will be dealt with sternly by the capital markets regulator.
Pandey said the regulator's ability to catch manipulation in CAS is higher than under the older volume weighted average price system (VWAP) it replaces.
The case also draws a link to SEBI's broader scrutiny of index-expiry trading strategies following its 2025 interim order against US trading firm Jane Street over alleged Bank Nifty manipulation -- a probe that was later expanded to cover other indices, including the Sensex.
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