MUMBAI: The first Sebi order relating to the recently introduced Closing Auction Session (CAS) system showed how, using money power, large institutions could manipulate the system and turn loss-making trades into profits in their books.In the order published late on Wednesday, Sebi’s investigation into the matter showed that on Aug 13, the sensex’s weekly options contracts were to expire, and Copthall Mauritius, an arm of the global financial sector major JP Morgan, had put in orders worth over Rs 191 crore in sensex constituents, which was 87% of the total value of all the trades in those stocks. In comparison, the next high-value trade was worth Rs 12.2 crore, or 5.5% of the total value of trade.On that day, within a two-second period between 3.20.41pm and 3.20.43pm, Copthall had placed almost all the buy orders, most of which were substantially above the ‘reference price’, leading to a 362-point rise in sensex value.That day, another spike in sensex was seen between 3.24.08 pm and 3.24.20 pm when sensex rose 133 points. This spike too came on the back of a large Copthall order, Sebi said.JP Morgan declined to comment on the matter.During the same CAS period, Mansi Share & Stock Broking placed aggressive sell orders between 3.21.03 pm and 3.24.59 pm, aggregating 12.65 lakh shares across eight sensex scrips, with a substantial portion placed materially below the reference price. Subsequently, the broker cancelled the entire block within a short period around 3.26.02 pm, the Sebi order said.The third spike in sensex that day was of 405 points that came between 3.25.49 pm and 3.26.17 pm. “This movement involved another aggressive buy-order burst by Copthall and was further amplified when Mansi (Broking) cancelled its large outstanding sell orders, removing the sell-side pressure and causing the (indicative price) to rise sharply in presence of outstanding aggressive buy orders of Copthall.”The Sebi order also said that Mansi Broking also followed a similar strategy to turn options contracts, which otherwise would turn worthless on the expiry day, profitable through large order placement and then cancellation of those orders.Sebi noted that for Copthall, a movement in the sensex from 77,820 points to 78,080 points “resulted in additional payoff on certain call positions and avoidance of payment on certain put positions.” In the case of Mansi (Broking), Sebi found that it exited “certain sensex put positions while its aggressive sell orders were outstanding. It is observed that these positions would otherwise have expired worthless.“Sebi on Wednesday night banned both the entities from the market and ordered them to disgorge illegal gains of nearly Rs 3 crore from Copthall and Rs 76 lakh from Mansi Broking.
