India’s market regulator has moved swiftly against a JPMorgan Chase & Co. affiliate and a domestic brokerage over alleged manipulation linked to the stock market’s newly introduced Closing Auction System (CAS), signalling that attempts to exploit the mechanism will face rapid regulatory scrutiny. The Securities and Exchange Board of India (SEBI) barred Copthall Mauritius Investment Ltd. and Mansi Share and Stock Broking Ltd. from accessing the capital markets just six days after the alleged trades took place on August 13. The unusually fast interim action has drawn attention because SEBI investigations and enforcement proceedings have historically taken considerably longer to reach this stage.

“It’s unprecedented,” said Ashwani Bhatia, a former board member at the watchdog. “SEBI had to nab any manipulative activity early on given that the adjustment process to the new system has not been smooth,” he said, according to a Bloomberg report.

The action comes at a crucial time for India’s market infrastructure. The CAS, introduced earlier this month, represents a significant change to the way closing prices are determined and is intended to bring Indian markets closer to international practices. However, unexpected movements in key stock indices during closing sessions have already sparked concern among market participants.

SEBI Sends Strong Signal With Swift Action

The regulator’s rapid intervention indicates that it is closely monitoring trading behaviour under the new auction framework. The speed of the action could also act as a deterrent for traders seeking to exploit the mechanics of the closing process.

The case involves alleged trading activity during the closing auction that SEBI believes affected the indicative equilibrium price of the BSE Sensex Index. According to the regulator’s 46-page interim order, Copthall and Mansi Share allegedly placed and cancelled orders in a manner that influenced the benchmark’s indicative closing price while benefiting their positions in Sensex options.

SEBI said significant portions of the orders were cancelled after being placed close to the upper limit of the permitted price band. The regulator alleged that these actions affected the indicative price despite the orders not being completely executed.

How The New Closing Auction System Works

The CAS is intended to determine closing prices through a defined auction period rather than relying on the previous closing mechanism. Its structure also gives regulators a concentrated period in which to examine trading activity.

That feature appears to have helped SEBI identify the alleged irregularities quickly. Instead of tracking potential attempts to influence closing prices across lengthy periods of continuous trading, surveillance teams can examine activity within the specific auction window, including how orders are entered, changed and withdrawn.

“At a practical level, the CAS is a single window under a spotlight, making it easier to surveil – especially for things like order spoofing – than under the previous regime,” said Ananth Narayan, a former board member at SEBI.

Narayan described the initial problems surrounding the system as “teething issues” rather than evidence that the framework itself should be abandoned.

JPMorgan Unit’s Ban Comes With Repayment Condition

The order against Copthall Mauritius does not directly restrict the broader Indian operations of JPMorgan. The Mauritian entity is distinct from J.P. Morgan India Pvt., which is registered with SEBI as a stock broker and merchant banker.

SEBI said the trading restrictions imposed on Copthall and Mansi Share would remain until the entities return nearly Rs 3.7 crore ($386,000) in combined alleged unlawful gains to the regulator.

The action also comes in the wake of SEBI’s earlier investigation into alleged manipulation involving Jane Street Group. That case attracted significant attention after the regulator’s initial order was disclosed last year. Unlike the latest matter, SEBI had spent more than a year investigating before taking action against the proprietary trading firm. Jane Street has denied the allegations and has challenged the proceedings in an Indian court while seeking access to additional documents.

The swift enforcement action arrives as the CAS continues to face a period of adjustment. The system has been accompanied by unexplained swings in major benchmarks during closing sessions, raising concerns about liquidity and the ability of traders to adapt to the new framework.

While some market participants have questioned the early volatility, SEBI Chairman Tuhin Kanta Pandey has indicated that the new mechanism is here to stay, although changes could be considered if required.

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