2025 (8) TMI 414 - Board - SEBI

Entity penalized for spoofing and market manipulation under SEBI Act and PFUTP Regulations, assets frozen, trading restricted

The SEBI Board found that the Noticee entity engaged in spoofing by placing and canceling large orders to manipulate market prices, violating multiple ... Spoofing Activity in the scrips - violation of various provisions of the SEBI Act, 1992 and the PFUTP Regulations - manipulative trading activity which involves placing bid or ask orders, with the intent of cancelling the said orders before execution while simultaneously executing trades on the opposite side of the book - HELD THAT:- Globally, spoofing which is also referred to as ‘layering’ is viewed as a serious violation under respective securities laws. In the instant matter, it is prime facie observed from the trading pattern of PWAPL that it punched spoof orders at price significantly above or below the CMP with an intention of it not being executed. The opposite side orders are executed once the price was in favour of PWAPL’s opposite orders. The market and genuine investors were led to attribute significance to the fact that offers were being made at particular prices. However, PWAPL was cancelling spoof orders prior to their execution. Acts of PWAPL i.e. to repetitively manipulate the order book on the buy/ sell side, by placing buy/ sell orders away from the prevailing market price and thereafter executing counter sell/ buy positions has led to market abuse. Hence, I find that PWAPL has prima facie violated sub-sections (a), (b) and (c) of Section 12A of the SEBI Act and sub-regulations (a), (b), (c) and (d) of Regulation 3, sub-regulation (1) of Regulation 4 and clauses (a), (b) and (g) sub-regulation (2) of Regulation 4 of the PFUTP Regulations. Liability of director - ascertain the liability of the person responsible for the conduct of its business of PWAPL - While an executive or whole-time director of the defaulting company can be called to be ‘in charge of the business of the company’, an independent director or a non-executive director, having no control over the day-to-day business of the company might not be considered to be in charge of the business of the company unless evidence to the contrary can be shown. In view of the above and basis the legal principle contained in section 27 of the SEBI Act, a rebuttable presumption can be drawn against the executive directors of PWAPL for fastening vicarious liability upon them for the contraventions committed by PWAPL in the instant matter. Unique Nature of modus operandi - The instant examination and the resultant action assumes significant importance from the fact that identifying such complex patterns involve extensive analysis of the Order Book of each individual scrip. It is important to underscore that order book manipulation presents a unique and significantly more complex challenge compared to traditional trade book analysis in the securities market. Unlike trade book analysis, which focuses on executed transactions, order book surveillance involves scrutinizing a vast volume of unexecuted orders—including placements, modifications, and cancellations—to detect patterns of potential manipulation, such as spoofing or layering. What makes order book manipulation particularly distinct is that it often leaves no trace in the executed trades, making it harder to detect and prove the violation. This complexity is further magnified by the massive growth in market volumes. The average number of trades per day, in 2025, is around 100 million. However, the scale of order activity is far greater, with average daily orders reaching approximately 16 billion in 2025. In this environment, sophisticated manipulation can occur in microseconds and may involve fleeting orders that are never intended to be executed. Detecting such behaviour requires advanced surveillance infrastructure capable of interpreting subtle, high-volume patterns. Advanced economies, such as USA, have been at the forefront of identifying and taking punitive action in the matters involving spoofing, including such instances where one entity spoofs and another entity benefits by trading on the other side. This order exemplifies how SEBI has developed capabilities of identifying such complex and extensive order book manipulations. Need for Interim order - We are compelled to invoke the provisions under sub-section (1) of section 11, sub-section (4) of section 11, section 11B of the SEBI Act, to hold that it is prime facie a fit case for passing interim order and to impound the proceeds of prima facie unlawful gains made by Noticees. Accordingly, proceed to issue interim directions in this matter, pending further examination by SEBI. Basis for disgorgement and debarment - Noticees are prima facie jointly and severally liable for impounding of unlawful gains made by them. PWAPL, being a registered stock broker, is expected to maintain high standard of integrity and ensure compliance with securities laws. In the present matter, it is prima facie evident that PWAPL has engaged in extensive spoofing activities in 173 scrips across 292 scrip-days in both cash as well as derivatives segment over a period of three years, which has resulted in unlawful gains of INR 3.22 crores. The alleged illegal activities of PWAPL persisted despite repeated communications and issuance of SCN by NSE. Considering the fact that PWAPL was well aware of its alleged spoofing activities and continued to indulge in unfair trade practices, I am of the view that Noticees should be debarred from the securities market till further orders. Interim order:- I. An amount of total unlawful gain earned from the alleged violations, shall be impounded, jointly and severally from the Noticees and the Noticees are directed to open fixed deposit account(s) in any Noticees’ name so as to credit or deposit the aforesaid amount of unlawful gains with a lien marked in favour of SEBI and the amount kept therein shall not be released without permission from SEBI. II. Noticee no.1 is prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, in its proprietary account. Noticees no. 2, 3, 4 and 5 are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly. III. Banks, where Noticees are holding bank accounts, shall be directed that no debits shall be made, without permission of SEBI, in respect of the bank accounts held jointly or severally by Noticees, except for the purposes of transfer of funds to the fixed deposit account(s) as stipulated above. Further, this direction shall not apply to those bank accounts of Noticee no. 1 which deal with clients’ funds, since Noticee no.1 is a stock broker registered with SEBI and deals with funds of clients. IV. Depositories shall also be directed that no debit shall be made, without permission of SEBI, in respect of the demat accounts held by Noticees. However, credits, if any, into the accounts may be allowed. Further, this direction shall not apply to those demat accounts of Noticee no. 1 which deal with clients’ securities, since Noticee no.1 is a stock brokers registered with SEBI and deals with securities of clients. V. Banks and the Depositories are directed to ensure that all the aforesaid directions are strictly enforced. Further, debits in the bank accounts may also be allowed for amounts available in the account in excess of the amount to be impounded. Banks are allowed to debit the accounts for the purpose of complying with this Order. VI. The Registrar and Transfer Agents shall ensure that, they neither permit any transfer nor redemption of securities, including Mutual Funds units, held by Noticees. VII. Noticees shall not dispose of or alienate any of their assets/properties, till such time the amount of unlawful gain is credited to fixed deposit account(s) except with the prior permission of SEBI. VIII. Noticees are further directed to provide a full inventory of all their assets whether movable or immovable, or any interest or investment or charge in any of such assets, including property, details of all their bank accounts, demat accounts, holdings of shares/securities if held in physical form and mutual fund investments and details of companies in which they hold substantial or controlling interest immediately but not later than 15 days of this Order. IX. The directions stipulated in paragraph (III), (IV), (V), (VI) and (VII) shall cease to apply upon credit of unlawful gains to the interest bearing fix deposit account(s) as stipulated in sub-paragraph (I) of this paragraph. X. If the Noticees have any open position in any exchange traded derivative contracts, as on the date of the order, they can close out /square off such open positions within 3 months from the date of order or at the expiry of such contracts, whichever is earlier. The Noticees are permitted to settle the pay-in and pay-out obligations in respect of transactions, if any, which have taken place before the close of trading on the date of this order. Banks are allowed to debit the accounts for the purpose of complying with this direction. A detailed investigation by SEBI in the matter is hereby directed, and may be completed expeditiously. The above directions shall take effect immediately and shall be in force until further orders. ISSUES: Whether the trading activities involving placement of large buy/sell orders at prices significantly away from prevailing market prices, followed by execution of opposite side trades and subsequent cancellation of initial large orders, constitute order spoofing under securities laws.Whether such order spoofing activities violate provisions of the Securities and Exchange Board of India Act, 1992 and Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.Whether the directors of the stock broker can be held liable for the alleged spoofing activities.The nature and characteristics of order spoofing as a manipulative trading practice and its impact on market integrity.The appropriateness and necessity of interim orders, including disgorgement and debarment, in response to identified spoofing activities. RULINGS / HOLDINGS: The Court held that placing multiple fully disclosed large buy/sell orders at prices significantly below/above the prevailing market price without intention of execution, followed by genuine trades on the opposite side and rapid cancellation of the large orders, is indicative of 'order spoofing'.Such spoofing activities violate the provisions of the SEBI Act and PFUTP Regulations by creating a false impression of demand/supply, misleading investors, and disrupting market integrity.The directors of the stock broker are liable for the spoofing activities as they were responsible for the modus operandi and overall trading pattern that constituted manipulative conduct.Order spoofing is characterized by placement of large artificial orders, market price manipulation through creation of false demand/supply, execution of genuine trades on the opposite side, rapid cancellation of spoofing orders, and profit generation through artificial price movements.Interim orders including disgorgement of wrongful gains and debarment are necessary and justified to prevent further market disruption and to uphold market integrity. RATIONALE: The Court applied the legal framework under the Securities and Exchange Board of India Act, 1992 and the PFUTP Regulations, which prohibit fraudulent and unfair trade practices including market manipulation.The Court relied on the established definition and characteristics of order spoofing as a manipulative trading strategy involving deceptive order placement and cancellation patterns.The Court examined detailed trading data showing large fully disclosed orders placed at prices substantially away from market prices, followed by execution of smaller, partially disclosed opposite side trades, and near-total cancellation of the large orders within short timeframes.The analysis included multiple instances across various scrips and trading days, demonstrating a consistent and identifiable pattern of spoofing behavior.The Court recognized the unique modus operandi of the stock broker and the role of its directors in facilitating and overseeing the manipulative scheme.The decision underscores the need for prompt regulatory intervention through interim orders to deter such market abuses and protect investor confidence.