India's securities regulator on Wednesday banned two firms from the market for allegedly manipulating trades on a newly launched closing-price mechanism used to determine the final official price of a security at the end of a trading day.
The regulator said the alleged violations by the firms, Copthall Mauritius Investment and Mansi Share and Stock Broking, happened on August 13 when weekly derivatives contracts linked to the BSE Sensex (.BSESN) expired.
Public records show that Copthall is a Mauritius-based entity owned by JPMorgan Chase (JPM.N). A JPMorgan spokesperson did not immediately respond to an email seeking comment. Mansi Share was also not immediately available for comment.
The Securities and Exchange Board of India (SEBI) ordered impounding a total of 36.8 million rupees ($384,324) from the banned firms, it said in an interim order.
In an interim order pending further investigation, SEBI said aggressive buy orders by Copthall and large sell orders by Mansi during the newly introduced closing auction session (CAS) for determining closing prices distorted the prices of Sensex constituent stocks.
The regulator said Mansi later cancelled much of its sell-side activity.
SEBI estimated wrongful gains of about 29.6 million rupees for Copthall and 7.2 million rupees for Mansi.
CAS, which was introduced in India on August 3 to improve price discovery, is a 20-minute auction window that starts at 3:15 p.m. IST after regular trading ends.
In its first two weeks, the new mechanism, introduced to align with global practices, has led to sharp swings in the Nifty 50 and BSE Sensex benchmarks and in options contracts linked to these indices.
"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.
According to the regulator, CAS is transparent, making it easier to catch such manipulation.
The regulator, in an order issued within six days of the alleged manipulation, added that it had so far not found any evidence that the two firms acted together.
($1 = 95.7525 Indian rupees)
