Sebi finds prima facie Sensex manipulation in CAS, impounds ₹3.68 crore; bars two entities

The Securities and Exchange Board of India (Sebi) has found prima facie evidence of manipulation of the Sensex closing price during the closing auction session (CAS) on August 13 and has impounded a combined ₹3.68 crore in alleged wrongful gains from two entities.

In an ex-parte interim order, Sebi named Copthall Mauritius Investment Limited and Mansi Share and Stock Broking Private Limited and said their trading during the new closing mechanism appeared to have been designed to push the Sensex up or down at a time when they held options that could benefit from those moves.

Sebi has also restrained the two entities from accessing the securities market and participating in the CAS. The regulator stressed that these are prima facie findings and that a detailed investigation is still underway.

Sensex swung sharply within seconds

The August 13 session was among the first expiry days under the new CAS framework, which came into effect on August 3. Under the system, the closing price of the Sensex is determined using the prices of its constituent stocks during the auction.

Sebi said its surveillance system detected unusual movements in the Sensex's indicative closing price on August 13, which was also a weekly expiry for Sensex options.

The Sensex was at 77,829.60 at 3:15 pm. The closing price determined through CAS was 78,079.96, rounded to 78,080 for Sebi's calculations.

The regulator identified three sharp upward moves during the auction:

• 362.02 points in two seconds

• 132.67 points in 12 seconds

• 405.08 points in 28 seconds

Sebi said the size and speed of these movements, when seen alongside the order activity of the two entities, warranted a detailed examination.

Copthall placed huge buy orders at the upper limit

Sebi's findings on Copthall form a major part of the order.

During the first spike, 88 buy orders worth around ₹66.64 crore were placed in just two seconds. Copthall accounted for ₹66.58 crore, or 99.91%, of the total buy-order value. Its orders were placed across Sensex stocks at prices close to 3% above the reference price, which was the maximum permitted level under the CAS framework.

The pattern repeated during the next two spikes. Copthall accounted for 96.09% of buy-order value during the second spike and 85.21% during the third. Its orders were again placed across the Sensex constituents at around 3% above the reference price.

Sebi said the orders were placed across the index constituents at roughly the same time and that the pattern “indicates a prima facie intent to manipulate the closing price” by pushing the Sensex higher.

Copthall later cancelled buy orders worth about ₹98.12 crore across 30 Sensex stocks. Sebi said the cancellation suggested the entity did not intend to actually acquire those shares through the orders.

Mansi used sell orders to push the index lower

Mansi's strategy, according to Sebi, worked in the opposite direction.

Between 3:21 pm and 3:26 pm, Mansi placed sell orders for 12.65 lakh shares across eight Sensex stocks. A large part of those orders were placed well below the reference price. Mansi subsequently cancelled all 12.65 lakh shares within a few seconds.

The total value of the sell orders was around ₹145.65 crore, while orders worth ₹143.44 crore were eventually cancelled.

Sebi said the cancellation caused the Sensex's indicative price to jump by 232.96 points, suggesting that the earlier sell orders had been holding the index down.

The regulator said the sell orders “prima facie reveals the intention of Mansi to never legitimately sell these shares but to knowingly suppress the IEP.”

The options trades explain why the moves mattered

The most important part of Sebi's case is the link between the share orders and the two entities' Sensex options positions.

Copthall held positions that would benefit if the Sensex ended higher. Sebi said its buy orders in Sensex stocks therefore had a direct financial connection with its options.

Mansi, meanwhile, held large put-option positions, which benefit from a lower Sensex. Sebi found that while Mansi was placing aggressive sell orders in the underlying stocks, it was also exiting those put positions at a profit.

Sebi said the cash-market activity “cannot be viewed in isolation” from the entities' expiry-day options positions.

Importantly, the regulator said the evidence did not prima facie show that Copthall and Mansi acted together. Instead, Sebi said each appeared to have tried to move the Sensex in a direction favourable to its own positions.

Sebi estimates ₹3.68 crore in wrongful gains

Sebi calculated ₹2.96 crore in wrongful gains for Copthall. The regulator estimated that, based on the Nifty's movement on August 13, an equivalent Sensex level would have been around 77,840, rather than the actual close of 78,080.

It said the higher closing level improved the value of Copthall's options and helped it avoid payouts on some contracts. The regulator said Copthall spent around ₹57 lakh in the cash market, but that expenditure resulted in a much larger benefit in its derivatives positions.

Sebi described this as an “asymmetric, irreversible wrongful gain” of ₹2.96 crore.

For Mansi, Sebi calculated wrongful gains of ₹71.65 lakh from the profit earned by exiting its put positions while the Sensex was being pushed lower.

Both entities barred from CAS

Sebi has ordered the two entities' bank accounts to be impounded to the extent of the alleged wrongful gains:

• Copthall: ₹2.96 crore

• Mansi: ₹71.65 lakh

• Total: ₹3.68 crore

The regulator has also restrained both from accessing the securities market and prohibited them from participating in the equity CAS, including placing, modifying or cancelling orders. For Mansi, the restriction applies to its proprietary trading account.

The urgency, Sebi said, was heightened because the entities had also created positions in the next weekly Sensex options expiring on August 20. The regulator said allowing them to continue participating in CAS could create a risk of the conduct being repeated.

This is not a final fine. Sebi has described the findings as prima facie and said a detailed investigation will continue. The entities have 21 days to respond and seek a personal hearing.