Why Sebi's closing auction session order is a strong message to future violators | Stock Market News

The Securities and Exchange Board of India's (Sebi) crackdown on a foreign portfolio investor and a domestic brokerage for manipulating the closing auction session (CAS) is a warning to traders against any mischief during the upcoming monthly expiry of Nifty and Sensex derivatives and beyond, say market experts.

Besides weekly index options expiry, NSE and BSE futures and options (F&O) contracts normally expire on the last Tuesday and Thursday of a month, respectively. The settlement happens a day earlier if either of the days coincides with a holiday.

On expiry days, the prices of cash shares and their derivative counterparts converge as the premium (a function of interest rates, dividends, and time to expiry) between them narrows to zero.

In a thinly traded market, manipulative activity during the closing 15 minutes can cause the cash price to rise or fall and the futures and options to settle at those prices. This is what Copthall Mauritius Investment Ltd and Mansi Share and Stock Broking Ltd allegedly did on 13 August, per Sebi's interim order on Wednesday.

Bloomberg reported that Copthall Mauritius Investment is a unit of JPMorgan Chase & Co.

"It's a signal by Sebi that Big Daddy is watching your every move," said Rajesh Palviya, senior vice president (derivatives & technical research) at Axis Securities.

"Coming days ahead of the Nifty monthly expiry on Tuesday and the Sensex monthly expiry on Thursday, it shows that any abnormal trading activity can be easily picked up by the regulator and, in that sense, will preclude disorderly price movements during the monthly expiry of both Nifty and Sensex derivatives under CAS."

These entities traded Sensex expiry options last Thursday (13 August ) ahead of the CAS, which runs between 3:15 and 3:35 pm daily. During the 10-minute order placing window (between 3:20 and 3:30 pm), Copthall purchased Sensex constituents at the 3% upper band to the reference price, while Mansi Share sold Sensex constituents 3% below the reference price that forms the basis for trades during CAS.

Any eligible limit or market order for a stock during CAS has to be placed in a 3% plus or minus band from the reference price. The limit orders can be modified during the 10-minute window.

The behaviour of the two entities attracted the surveillance department's attention at Sebi, as a buyer would typically wish to pay the lowest price for a stock, while a seller would want the highest possible price for their stock. In both the cases SEBI investigated , the action was the opposite, confirming suspicions of foul play.

Further investigation by the regulator revealed that Copthall had, during the day, purchased call options and sold put options on Sensex – equivalent to buying a futures contract – while Mansi Share had purchased put options on Sensex to gain from a fall in Sensex price during CAS.

During the 10-minute CAS order-placing window, Sensex spiked three times while exhibiting downward bias for a few minutes. The spikes caused a jump in expiry day calls purchased by Copthall, while at the same time, the sold puts lost value, enabling a wrongful gain of ₹2.96 crore for the foreign portfolio investor, per Sebi.

During the downward trajectory between the spikes, caused by selling of Sensex constituents by Mansi Share at the peak of the spikes, Sensex puts gained in value, enabling wrongful gain of ₹71.65 lakh to the entity. The exit of short positions by Mansi Share boosted a third spike in the index .

The regulator has impounded the alleged gains and given the entities three weeks to respond to its findings.

"It is easier for the regulator to spot manipulative activity under CAS, thanks to the upper and lower price band around a reference rate determined by volume weighted average price in a 15-minute window prior to the auction," said S.K. Joshi, consultant, Khambatta Securities. "By this action, manipulation at upcoming weekly or monthly expiries will be increasingly difficult and lead to more orderly markets at the auction.

The actions of the two entities caused the Sensex to gyrate 453 points between intraday high and low before closing up 0.15% at 78079.96, coinciding with its weekly index expiry. The Nifty 50, on the other hand, ended 0.16% lower on a non-expiry day.

Introduced on 3 August, CAS replaced the closing settlement of 213 stocks on which derivatives are available, from a volume-based average over the last 30 minutes to a single price discovery mechanism based on a 20-minute auction window.

Under CAS, the closing price is expected to be broader and more structured, acting as a deterrent to manipulation.

The modus operandi of the two entities was similar to that used by Jane Street, referred to by Sebi as extended marking the close in its order of July 2025.

Ram Sahgal is a deputy editor at Mint. He has over 20 years of experience in journalism, with previous roles at The Intelligent Investor, Bombay Times, The Economic Times, and The New Indian Express. Between his media roles, he briefly worked at a commodities exchange before returning to his true passion, business journalism. Ram graduated in liberal arts from St Xavier’s College, Mumbai, where he studied films, which explains his move to Bombay Times, where he covered the film industry during the rise of Sunny Deol and Sanjay Dutt. He took a leap of faith to transfer to The Economic Times, and thanks to his restless mind, later moved to cover the commodities beat. Over the past three years, Ram has been tracking the stock markets at Mint. His focus areas include writing about market infrastructure institutions, brokerages, derivatives, and related regulations. His hobbies include spotting trains and understanding the locomotives that power them. In his free time, he takes his octogenarian mother out for drives and goes to the cinema with her on weekends. If he has a dream, it is to write a screenplay for a movie. For now, he enjoys viewing market data on NSE and BSE, observing the shifting mood of Mr Market, and conversing with market experts.

Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.