The Indian securities regulator has issued a temporary ban on the operations of a JPMorgan Chase & Co. subsidiary in record time. Market observers believe this move could serve as a deterrent against attempts to manipulate the country's new closed auction system.
The decision by the Securities and Exchange Board of India (Sebi) prohibited JPMorgan Copthall Mauritius Investment Ltd. and local brokerage firm Mansi Share and Stock Broking Ltd. from participating in the stock market for six days following alleged manipulative trading on August 13. This differs from previous practices where the regulator could take years to issue such orders.
Ashwani Bhatia, a former member of the supervisory board, noted that this is unprecedented. He emphasized that Sebi should have promptly stopped any manipulative activity because the adaptation process to the new system was not smooth.
This strict measure underscores the regulator's determination to ensure the success of the so-called Closing Auction System, which is one of the largest reforms in the Indian stock market in recent years and aims to bring it in line with global standards. The launch of this system at the beginning of the month caused discontent among traders due to unexplained jumps in benchmark indicators during the closing of trading sessions.
Although official Sebi representatives made no further public comments regarding the decision against JPMorgan and Mansi Share, Chairman Tuhin Kanta Pandey stated earlier this week that the new system will remain in effect, although the regulator is prepared to consider possible adjustments.
The swift adoption of this order also partially reflects lessons learned from the investigation into alleged market manipulation by Jane Street Group, which was revealed in an initial high-profile order last year. In that case, Sebi began its investigation more than a year before taking action against the proprietary trading firm. The Wall Street firm denies all allegations and contests them in an Indian court, demanding access to additional documents.
It is important to note that Copthall is separate from J.P. Morgan India Pvt., which is registered with Sebi as a stockbroker and merchant bank. Consequently, the ban imposed on the Mauritian entity does not directly affect JPMorgan's operations in India, which are primarily conducted through its local subsidiary.
Sebi stated in its order that the trading ban on Copthall and Mansi Share will be lifted after these entities return the regulator the aggregate illegal income of nearly 37 million rupees ($386,000).