India’s Securities and Exchange Board (SEBI) has barred a JPMorgan-linked entity and a domestic brokerage firm over alleged manipulation of a new feature in India’s equity markets.

 

In an ex-parte interim order issued by the Indian regulator on Wednesday, Copthall Mauritius Investment Ltd., a Mauritius based company linked to JPMorgan, and Mansi Share and Stock Broking Pvt. Ltd. were found to have distorted prices by placing large, aggressive buy orders during the closing auction session (CAS) on Aug. 13, the same day the BSE Sensex weekly derivatives contract expired.

 

By placing large buy orders in Sensex stocks, the companies were able to push up Sensex prices, benefiting their existing stock holdings. SEBI deemed the actions to constitute market manipulation and fined Copthall Mauritius Investment ₹2.96 crore, or $310,000, and Mansi Share and Stock ₹71.65 lakh, or $75,000, over the alleged gains.

 

“Any manipulation or unfair practices employed to disturb the fair discovery of prices in CAS has to be dealt with sternly by the regulator,” SEBI said, adding that such conduct could “undermine the integrity of the CAS mechanism” and disrupt the orderly functioning of securities markets.

 

CAS: A New Feature in India’s Equity Markets

 

Closing Auction Session, or CAS for short, is a relatively new feature of India’s equity markets that was introduced by the Securities and Exchange Board of India (SEBI) on Aug. 3.

 

It replaced the previous Volume Weighted Average Price (VWAP) method, improving price discovery so that the closing price of stocks better reflects genuine end of day supply and demand. However, the feature was reportedly manipulated by the two companies in a carefully coordinated scheme, leading to their being barred from participating in the Indian markets.