Sebi bars two entities for ‘manipulating’ CAS

Mumbai: In its first order since introducing the new closing auction session (CAS) earlier this month, Sebi on Wednesday barred Copthall Mauritius Investment and Mansi Share and Stock Broking from accessing the securities market and participating in the CAS, alleging the two entities manipulated the Sensex on the August 13 expiry day to benefit from their derivatives positions.

The regulator said its surveillance system detected sharp and unusual movements in the Sensex during the CAS, which was introduced to improve price discovery and transparency.

Sebi alleged that the trading activity of the two entities was aimed at influencing the index’s closing value and generating wrongful gains from their expiry-day Sensex option positions.

It observed three sharp movements in the Sensex during the CAS on August 13. Movements of 362.02 points, 132.67 points and 405.08 points, respectively, were recorded within 2 to 28 seconds.

The order log further shows substantial concentration of the relevant orders by the two participants. Copthall accounted for 99.91% and 96.09% of the buy-order value during the first two-second spike and 85.21% during another relevant period, it said.

“Such conduct, particularly when undertaken prima facie with a malafide intention to manipulate the payoff from the outstanding Sensex options of expiry-day, presents a serious concern from the perspective of market integrity and fair price discovery and undermines the functioning of the securities markets. It is also unfair to other investors who invest in mutual funds and take positions in options based on trust,” Sebi whole time member Kamlesh Varshney said in an ex-parte interim order.
The regulator said Copthall placed large buy orders across Sensex constituents at prices materially above the reference price. It simultaneously held long call and short put positions in Sensex options, giving it an economic incentive to keep the index higher at expiry.Sebi said the aggressive buying appeared to have been designed to push up the indicative equilibrium price (IEP) and benefit Copthall’s outstanding options positions. It estimated Copthall’s prima facie wrongful gains at ₹ 2.9 crore.

The regulator said Mansi adopted an opposite strategy. It placed large sell orders across eight Sensex constituents at prices significantly below the reference price, putting downward pressure on the IEP. The entire sell block was subsequently cancelled.

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It said Mansi had outstanding put-option positions that would benefit from a lower Sensex. Once the positions were squared off, the sell orders were cancelled, which, according to the regulator, indicated that the orders were not bona fide but were intended to artificially suppress the index.

Sebi estimated Mansi’s wrongful gains at Rs 71.6 lakh, taking the combined prima facie wrongful gains of the two entities to Rs 3.6 crore.

“It is pertinent to note that the examination or the evidence does not prima facie indicate that the entities acted in concert.” Sebi said.