Sebi lifts trading ban on JPMorgan unit in alleged CAS manipulation case

India’s capital market regulator has reportedly lifted the trading ban on a unit of JPMorgan Chase & Co. after the firm deposited ₹2.96 crore linked to alleged gains from trades in the newly introduced Closing Auction Session (CAS).

The Securities and Exchange Board of India (Sebi) on August 19 barred Copthall Mauritius Investment Ltd., a Mauritius-based unit of JPMorgan, along with Mumbai-based Mansi Share and Stock Broking from accessing the capital markets. The action followed allegations of market manipulation during the BSE’s closing auction on August 13. Sebi also ordered the impounding of the alleged wrongful gains.

According to a report, both entities have now been allowed to access India’s capital markets again after depositing amounts linked to the alleged gains. The Sebi investigation, however, will continue.

Why Sebi barred the two entities

The case relates to trading activity during the Sensex weekly derivatives expiry on August 13. According to Sebi’s findings, Copthall placed aggressive buy orders in Sensex constituent stocks during the auction, while Mansi placed large sell orders.

Sebi alleged that the trades affected the indicative equilibrium price used to determine the closing prices of stocks. This could have benefited positions held in the derivatives market. Mansi later cancelled a substantial portion of its sell orders, according to the regulator.

Sebi estimated the alleged gains at about ₹2.96 crore for Copthall and ₹71.6 lakh for Mansi, taking the combined amount to around ₹3.68 crore. The restrictions were imposed pending further investigation.

The episode has also raised concerns over the functioning of CAS, which came into effect on August 3 as a new mechanism for determining closing prices of eligible securities. Under the new system, the closing price discovered through the auction is also used as the settlement price for derivative contracts on expiry.

Sebi to review derivative settlement rules

Last week, Sebi said that it would review the methodology used to determine derivative settlement prices after receiving feedback from market participants during the first month of CAS operations. The regulator said it may propose changes and plans to issue a consultation paper.

The review comes amid concerns over sharp price movements around expiry sessions and differences between auction-derived closing prices and prevailing market prices. Recent trading sessions have also seen increased volatility during the closing auction, adding to concerns over the interaction between the cash-market auction and derivatives settlement.

CAS was introduced to improve price discovery by bringing greater participation into the closing process. However, its first month of operation has prompted Sebi and market participants to examine whether the mechanism, particularly its link to derivatives settlement, needs further changes.