SEBI has issued its first interim order alleging manipulation of trades during the Closing Auction Session. Stock exchanges introduced this mechanism on August 3. The regulator alleges that aggressive cash-market orders influenced the SENSEX on August 13. These orders reportedly benefited derivatives positions, raising concerns over potential misuse of the new auction mechanism.
The case relates to trading on August 13, the weekly expiry day for SENSEX derivatives. It highlights potential vulnerabilities in the new mechanism.
How the Closing Auction Session Works
The Closing Auction Session operates after regular cash-market trading ends at 3:15 pm. Exchanges establish a reference price between 3:15 pm and 3:20 pm. An auction then runs from 3:20 pm to 3:30 pm to determine closing prices. Sharp movements in SENSEX constituents during this window can significantly affect the index’s final level. They can also impact expiry-day derivatives positions.
SEBI Alleges Coordinated Price Manipulation
SEBI alleged that Copthall Mauritius Investment Ltd placed aggressive buy orders at the maximum permissible limit across SENSEX constituent stocks. These orders contributed to three sharp upward spikes. The regulator said Copthall accounted for as much as 99.91 per cent of total buy-order value during the first episode. The firm subsequently cancelled its latest buy orders.
SEBI also alleged that Mansi Share and Stock Broking Pvt Ltd attempted to push the SENSEX lower. The firm placed sell orders worth Rs 143.43 crore across eight constituent stocks. SEBI said 99.06 per cent of those orders were cancelled within seconds.
The regulator linked the alleged cash-market activity to derivatives positions. SEBI estimated wrongful gains of about Rs 2.96 crore for Copthall and Rs 71.65 lakh for Mansi.
Surveillance Concerns Around the New Mechanism
SEBI’s first interim order tied to the Closing Auction Session underscores the need for close surveillance of closing-auction activity. This becomes particularly critical on derivatives expiry days, when index movements can carry significant financial consequences.
