India's market regulator has barred a Mauritius-registered arm of JPMorgan Chase from the country's capital markets, accusing it of rigging the closing price of the Sensex on options expiry day, it was reported on August 20.

The Securities and Exchange Board of India impounded INR36.8mn ($385,000) it described as wrongful gains made by Copthall Mauritius Investment and the local brokerage Mansi Share and Stock Broking - INR29.6mn from the JPMorgan vehicle and INR7.2mn from Mansi.

Both firms placed and then pulled outsized orders inside the closing auction window on August 13, according to SEBI's 46-page ex-parte interim order, which found the trading pushed the indicative closing price of the benchmark around in a way that protected the pair's expiring options positions. Copthall placed buy orders for 3.17mn shares that day, close to 12 times the next biggest participant, and cancelled almost a third of them; one order worth INR981mn was placed and withdrawn seven seconds later. Mansi entered sell orders for 1.28mn shares and scrapped nearly all of them.

The order matters well beyond the two firms named in it. SEBI only introduced the auction-based close this month, for more than 200 stocks in a $5.1 trillion market, precisely to bring India into line with global peers and make the daily close harder to push around. The regulator is prosecuting the first alleged attempt to do exactly that.

SEBI's examination found three spikes in the Sensex indicative equilibrium price during the session, lifting the index by 362 points, 133 points and 405 points in turn. In some securities the two entities accounted for more than 90% of all orders entered.

"These large buy orders and sell orders, which were placed and then cancelled, allowed them to avoid losses or wrongfully profit themselves from positions in derivatives trades that otherwise would have expired worthless," wrote SEBI board member Kamlesh Varshney, who signed the order. He has asked for a fuller examination of the trades, to be completed quickly and without being coloured by his own findings. Both entities have 21 days to reply and may seek a hearing.

A JPMorgan spokesperson declined to comment; Mansi Share did not respond to an email request for comment. Copthall is registered in Mauritius and once held Indian equities worth more than INR55bn, according to the data platform Trendlyne; those holdings had shrunk to under INR380mn by June 30. It is a separate entity from J.P. Morgan India, the SEBI-registered broker and merchant bank through which most of the group's Indian business runs, so the order does not directly touch that operation.

This is the biggest manipulation case against a global firm since SEBI went after Jane Street last year, ordering the US trading house to disgorge more than INR48bn in what it called unlawful gains. Jane Street denied the charges and is appealing in an Indian court, seeking access to further documents.

Not everyone reads the case as a verdict on the mechanism. "This is an isolated incident that warrants investigation, but I wouldn't generalise from it," said Siddhartha Agrawal, a fund manager at Strique in Gurugram. "The broader market structure remains robust, and there is nothing intrinsically wrong with the closing auction mechanism."

Traders are less sanguine. The 20-minute price-setting window has drawn complaints since launch over unexplained jumps in the benchmarks and thinning liquidity, with average turnover during the auction down 40%. SEBI chairman Tuhin Kanta Pandey said this week the system is here to stay, though the regulator remains open to adjustments and has stepped up its meetings with market participants.