The Securities and Exchange Board of India (SEBI) has cracked down on two entities after finding \u201cprima facie\u201d evidence of manipulation in last week\u2019s Sensex expiry close during the newly-introduced closing auction session (CAS) by placing aggressive buy and sell orders in its constituents.<\/p>\n
The markets regulator has restrained Copthall Mauritius Investment and Mansi Share and Stock Broking from accessing the securities market, and closing auction. Copthall has been ordered to disgorge \u20b92.96 crore and Mansi \u20b971.65 lakh. The bank accounts have also been directed to be frozen for debits.<\/p>\n
During the closing auction on August 13, the Sensex swung 362.02 points in just two seconds, 132.67 points in 12 seconds and another 405.08 points in 28 seconds, with all three sharp moves unfolding within five minutes.<\/p>\n
Copthall was buying across Sensex constituents and at prices close to the upper permissible limit. It accounted for 99.91 per cent of the relevant buy-order value during the first move, 96.09 per cent during the second and 85.21 per cent during the third. After the third spike, it cancelled buy orders worth about \u20b998.12 crore across 30 stocks.<\/p>\n
The significance of these trades becomes clearer when viewed alongside Copthall\u2019s derivatives positions. SEBI found that the entity held substantial long call and short put positions in expiring Sensex options. A higher settlement value directly improved the profitability of those positions and reduced obligations arising from sold put options.<\/p>\n
\u201cIt is prima facie established that such aggressive buy orders by Copthall had caused a sustained upward move in IEP of Sensex constituents and ultimately resulted in Sensex closing at 78080, whereas, equivalent move based on Nifty movement would have resulted in Sensex closing at 77840,\u201d WTM Kamlesh Varshney said in an ex-parte interim order on Wednesday.<\/p>\n
Mansi Share and Stock Broking, meanwhile, allegedly employed the opposite strategy. SEBI\u2019s analysis shows that the broker\u2019s proprietary account placed large sell orders worth more than Rs 145.65 crore across several Sensex stocks at prices significantly below prevailing reference levels. These orders remained in the system for nearly five minutes, exerting downward pressure on the index. Moments before the close, the orders were cancelled, triggering an immediate rebound in the IEP.<\/p>\n
It placed sell orders worth \u20b9145.65 crore between 3:21 pm and 3:26 pm, and then cancelled \u20b9143.44 crore of those orders, which led to an immediate surge of 232.96 points in Sensex. SEBI contends that these orders were never intended to result in genuine trades and were instead used to suppress the index while the firm exited profitable put option positions. The regulator has calculated wrongful gains of about Rs 71.65 lakh from this activity.<\/p>\n
SEBI, however, has not alleged that the two entities acted together, but each appeared to have tried to create a favourable move in the Sensex for its own expiry-day options positions. Copthall stood to benefit from a higher Sensex, while Mansi had put-option positions that benefited from a lower index.<\/p>\n
\u201cThe aforesaid sequence, when considered together with the F&O positions of Noticees, prima facie indicates that the underlying cash-market activity was not undertaken as an independent trading strategy but had a direct economic relevance to the Noticees positions in Sensex options,\u201d the order said.<\/p>\n
The two entities have created outstanding positions in the coming weekly Sensex options on August 20, necessitating the immediate and urgent action by SEBI.<\/p>\n
\u201cImmediate interim directions are necessitated in the interest of maintaining the integrity of the securities market, fair price discovery and preventing further possible misuse of the CAS mechanism in the securities markets by entities adopting manipulative practices,\u201d the order said.<\/p>\n
SEBI said the order is based on prima facie findings and that a detailed examination of the matter is still required.<\/p>\n
The order coincides with SEBI Chairman Tuhin Kanta Pandey statement on the sidelines of the FICCI Capital Markets Conference. \u201cWe want to make one thing clear, that if people do manipulation in CAS, then we will take strict action and do it immediately\u2026if someone thinks they will manipulate CAS to defame it, they are mistaken,\u201d he said.<\/p>\n
The CAS, which came into effect from August 3, is a 20-minute trading window from 3:15 pm to 3:35 pm used to determine the closing price of the stocks by matching buy and sell orders for price discovery.<\/p>\n