SEBI bars JPMorgan unit from markets over alleged manipulation
What's the story
The Securities and Exchange Board of India (SEBI) has banned a Mauritius-based unit of JPMorgan Chase & Co. from the capital market. The ban comes over allegations of market manipulation in India's newly introduced auction-based system for share price discovery. SEBI has also impounded $386,000 as wrongful gains made by the JPMorgan unit Copthall Mauritius Investment Ltd. and local firm Mansi Share and Stock Broking Ltd.
Manipulation charges
Allegations of manipulative trades
The SEBI order alleged that Copthall and Mansi Share engaged in manipulative trades during the closing auction window on August 13.
The aim was to manipulate the indicative equilibrium price of the BSE Sensex Index to their advantage in terms of options positions on the benchmark.
The 46-page order on Copthall and Mansi Share shows their trading in underlying securities during the closing auction impacted their expiry-day Sensex options positions.
Trading strategy
'Outsized orders' in Sensex stocks
The firms allegedly placed outsized orders in Sensex stocks during the closing auction, accounting for over 90% of all orders in some securities.
They later canceled large portions of these orders, influencing indicative closing prices without executing trades fully.
"These large buy orders and sell orders, which were placed and then canceled, allowed them to avoid losses or wrongfully profit themselves from positions in derivatives trades that otherwise would have expired worthless," said SEBI board member Kamlesh Varshney.
Regulatory response
SEBI's auction-based system under scrutiny
The crackdown comes as SEBI grapples with the challenges of its recently introduced auction-based system to set closing prices for over 200 stocks in India's $5.1 trillion stock market.
Despite criticism from traders over unexplained spikes in stock benchmarks during closing sessions, SEBI Chairman Tuhin Kanta Pandey has said that the new system is here to stay.
Past precedent
Previous case against Jane Street Group
SEBI's findings against JPMorgan come a year after it accused US-based proprietary trading firm Jane Street Group of market manipulation.
The Wall Street firm had denied the charges and is currently appealing in an Indian court for access to more documents.