Fraudulent expiry-day trading patterns can distort index levels, create misleading market signals, and trigger interim SEBI restraint.

Large, coordinated trades in underlying securities and derivatives that are designed to distort an index or its expiry closing level can create a false or misleading market appearance and amount to fraudulent and manipulative conduct under the securities law framework. The SEBI Board examined two expiry-day trading patterns: intraday index manipulation, involving aggressive morning buying of constituent stocks and futures, followed by reversal after building bearish options positions; and marking the close, involving concentrated end-of-session trading to move settlement levels in favour of derivative positions. The analysis relied on volume concentration, last-traded-price impact, and the mismatch between underlying losses and options gains. Prima facie violations were found, and interim protective directions, including impounding unlawful gains and market restraint, were justified.

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Issues: Whether the trading patterns adopted by the entities constituted a fraudulent and manipulative device under the securities law framework and whether interim directions for impounding unlawful gains and market restraint were warranted.

Analysis: The Order examined two recurring trading patterns on expiry days. First, in the intraday index manipulation pattern, the entities were found to have aggressively bought BANKNIFTY constituent stocks and futures in the morning, supported the index, and simultaneously built large bearish positions in index options at favourable levels, before reversing the underlying positions later the same day and pushing the index down. The analysis relied on concentration of traded value, last-traded-price impact, and the mismatch between large underlying losses and substantial options profits. Second, in the extended marking the close pattern, the entities were found to have concentrated aggressive buying or selling in the final part of the session so as to move the expiry settlement level in their favour, again supported by volume concentration, LTP impact, and contemporaneous options positioning. The Order held that such conduct created a false or misleading appearance of trading, manipulated benchmark prices, and lacked a standalone economic rationale other than to benefit the larger derivative positions.

Conclusion: The Order concluded that the entities had prima facie violated the cited provisions of the SEBI Act and the PFUTP Regulations, and that interim measures including impounding of unlawful gains, restraint from accessing the securities market, and continuing monitoring were justified.

Final Conclusion: Interim ex parte protective directions were issued to secure the alleged unlawful gains and prevent further market abuse pending detailed investigation.

Ratio Decidendi: Large and aggressive coordinated trades in underlying securities and derivatives that are designed to distort an index or its closing level, create a misleading market appearance, and profit from contemporaneous derivative positions constitute fraudulent and manipulative conduct within the securities law framework.

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