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Mint
30-04-2025
- Business
- Mint
Mint Explainer: What Sebi's spoofing crackdown means for the stock market
The Securities and Exchange Board of India (Sebi) has turned the spotlight on a sophisticated market manipulation technique known as "spoofing" through a recent interim order against Patel Wealth Advisors Pvt. Ltd. (PWAPL), a registered stockbroker. The order details PWAPL's alleged use of high-frequency algorithmic strategies over three years to distort prices in both the equity and derivatives markets. Mint delves into the intricacies of spoofing, its detrimental impact on market integrity, and the broader implications of Sebi's action for brokers, traders and algorithmic trading operators. Spoofing is a deceptive tactic through which traders strategically place substantial buy or sell orders at prices that differ significantly from the current market price. These orders are not intended for execution; instead, the goal is to create a false impression of either strong demand or overwhelming supply in the market. The side on which these large, ultimately cancelled orders are placed is known as the "spoof" side, and the trader involved is termed a 'spoofer". By injecting these phantom orders into the order book, the spoofer creates an artificial imbalance, influencing other market participants to react and trade based on this misleading signal. Also read | Mint Explainer: India puts Indus Waters Treaty on ice—what's at stake for both sides Once this induced trading activity causes the desired movement in the price of the underlying asset, the spoofer swiftly executes genuine trades on the opposite side of the order book. This allows them to capitalise on the artificially created price difference and generate illicit profits. Sebi's investigation into PWAPL's trading activities spanned January 2022 to January 2025, and included a detailed forensic analysis of it trading patterns. The regulator used sophisticated, multi-layered surveillance techniques and advanced data analytics to examine PWAPL's trading behavior across 292 scrip-contract days, covering 173 different stocks. This thorough scrutiny revealed recurring instances of substantial orders being placed and then rapidly cancelled. Sebi identified "spoofing patches" on both the buy and sell sides, indicating a systematic approach to manipulation across various market segments. PWAPL's alleged spoofing activities extended beyond the cash equity market into equity derivatives, including futures contracts. The investigation highlighted instances in which more than 99% of the order quantity was cancelled, strongly suggesting a deliberate intention to mislead other market participants. Also read | Mint Explainer: What RBI's new liquidity coverage ratio norms mean for banks By meticulously analysing trade-level data, Sebi back-calculated the intra-day square-off gains allegedly accrued through these manipulative strategies. In just two illustrative examples—Coffee Day and Syrma SGS Technology—the regulator estimated that PWAPL earned ₹ 13.44 lakh in a single day using these tactics. Sebi concluded that PWAPL engaged in extensive spoofing activities in both the cash and derivatives segments over a three years, resulting in unlawful gains amounting to ₹ 3.22 crore. It directed the impounding of the amount, with joint and several liability assigned to the accused parties, including PWAPL and its directors. Additionally, PWAPL has been barred from dealing in securities in its proprietary account, and its directors have been restrained from trading directly or indirectly until a final order is issued. Experts view Sebi's recent order against Patel Wealth Advisors (PWAPL) as a strong signal of its commitment to tackling sophisticated market manipulation like "spoofing" through advanced data surveillance. The order details PWAPL's alleged use of algorithmic strategies to distort equity and derivative prices over three years. Spoofing involves placing and quickly cancelling large orders to create a false sense of market demand or supply, thereby misleading other traders and generating illicit profits. Sebi's investigation revealed patterns of large order placements and rapid cancellations by PWAPL across 173 stocks, leading to an estimated ₹ 3.22 crore in unlawful gains. The regulator has impounded this amount and restricted PWAPL and its directors from trading. Also read | The math behind Trump's three-arrow plan to cut US deficit—what the third move could mean for the world economy Sandeep Parekh of Finsec Law Advisors said the order was significant, given the rarity of such cases and the substantial profit involved. "Given the final number of over ₹ 3 crore worth of profit, it appears to be of somewhat large scale," he said, suggesting that PWAPL disregarded earlier warnings. Parekh added that Sebi had likely demonstrated manipulative intent, and that he didn't foresee new burdens for algorithmic traders or a need for new laws. Meanwhile, Hemen Asher, Partner at Bhuta Shah & Co LLP, a taxation firm, asked if Sebi's stance meant that brokers heavily involved in proprietary trading couldn't provide two-way quotes, given that much of algorithmic trading involves rapid, complex buy-sell orders triggered by specific conditions. Sebi acknowledged that "spoofing" isn't explicitly defined under its Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market (PFUTP) regulations but argued that the practice falls under prohibited activities, citing the Nimi Enterprises case as a precedent. In 2023, the regulator found Nimi Enterprises to have engaged in spoofing in the cash segment across 16 scrips over the course of 58 scrip-days, which resulted in unlawful gains of around ₹ 52.55 lakh. While some experts suggested Sebi create a formal definition for clarity, others such as Tushar Kumar, Supreme Court lawyer said broad regulations offered better flexibility to combat evolving manipulative tactics. "Leaving spoofing and similar misconduct within the ambit of broad anti-fraud regulations like PFUTP preserves regulatory flexibility and ensures that market protection keeps up with innovation," Kumar said. He also said Sebi's approach was likely to be upheld in court. "Indian courts and tribunals have historically upheld Sebi's expansive interpretation of PFUTP to cover evolving market abuses. Even if challenged, Sebi's reliance on PFUTP to prosecute spoofing is likely to withstand judicial scrutiny, provided the evidence establishes an intent to deceive or manipulate," Kumar added. Also read | Mint Explainer: What are UCITS—and why Indian investors should consider them Former Sebi officer Sumit Agrawal pointed out that India lacked specific laws for spoofing. "The reliance on precedents like the Nimi Enterprise order, now stayed by the Securities Appellate Tribunal (SAT) and under challenge, illustrates the fluid legal terrain and the ongoing judicial scrutiny around the foundational principles underpinning Sebi's spoofing jurisprudence," he said. Agrawal also said that when enforcement relies heavily on interpretative inferences and non-final precedents such as Nimi's, the need for legal clarity is paramount. "The broader concern is the increasing reliance on general and widely worded provisions, which can render outcomes variable depending on the interpretational approach of a Whole Time Member of the day", he said.
News18
29-04-2025
- Business
- News18
SEBI Cracks India's First Major Spoofing Case Involving 173 Stocks And A Broker
Last Updated: SEBI has ordered PWAPL to disgorge over Rs 3.22 crore in illegal gains after unearthing a large-scale spoofing operation; What is spoofing? In a landmark move, the Securities and Exchange Board of India (SEBI) has ordered Patel Wealth Advisors Pvt Ltd (PWAPL) and its associates to disgorge over Rs 3.22 crore in illegal gains after unearthing a large-scale spoofing operation—a manipulative trading practice used to create false demand in stocks. SEBI has barred PWAPL from trading in the securities market through its proprietary account. Additionally, the company's directors have been prohibited from accessing the market, marking one of the most significant enforcement actions in India against this kind of market manipulation. The regulator's order, issued on April 28, revealed that PWAPL's spoofing activities were not only extensive but also spread across both the cash and derivatives segments, a first for India in terms of scale. SEBI's investigation found that spoofing occurred in 173 scrips over 292 trading days, with 621 unique instances—sometimes multiple times in a single session—between April 2019 and March 2022. What is Spoofing? Spoofing is a deceptive trading tactic that involves placing large orders (buy or sell) on one side of the order book without the intention of executing them. These phantom orders, placed well below or above the market price, create the illusion of strong demand or supply. This misleads other investors, prompting them to trade, after which the spoofer cancels the original orders and profits by executing trades on the opposite side. SEBI Whole-Time Member Kamlesh Varshney explained: 'Order spoofing is a manipulative practice where traders place and then cancel large buy or sell orders to mislead the market. This artificial pressure on the order book distorts market prices and induces unsuspecting investors to take positions, allowing the spoofer to profit from the resulting price movement." Varshney emphasised the urgency of passing an interim order due to PWAPL's repeated manipulation on both the buy and sell sides. 'Allowing PWAPL to continue these spoofing activities would severely erode the integrity of the securities market and harm investors," he noted. He further called spoofing a 'fraudulent and unfair trade practice" that deceives other market participants and undermines price discovery and market efficiency. While SEBI had previously flagged a smaller spoofing case involving Nimi Enterprises in 2023, that incident was limited to the cash segment and spanned only eight months. The PWAPL case marks the first major crackdown involving both market segments and a significantly larger footprint.
Time of India
28-04-2025
- Business
- Time of India
Sebi slams spoofing scam in 173 stocks, orders Rs 3.22 crore seizure from Patel Wealth Advisors, directors
Sebi order spoofing: Patel Wealth Advisors and its directors face Sebi action for spoofing trades, leading to Rs 3.22 crore in unlawful gains and a ban from market access. Sebi order spoofing: Sebi ordered the impounding of Rs 3.22 crore from Patel Wealth Advisors and its directors for order spoofing across 173 scrips, also barring them from securities markets. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Market regulator Securities and Exchange Board of India (Sebi) on Monday ordered impounding of Rs 3.22 crore from a stock broking company and its four directors after finding them to have indulged in "order spoofing" and making unlawful gains. In the interim order, the market watchdog also barred the company and its directors from accessing the securities alleged order spoofing was followed by the company over 292 scrip contract days spread over 173 different spoofing is a type of 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. The side (i.e. buy or sell) on which such large orders are placed and cancelled is known as 'Spoof' side and the suspect trader involved in such kind of activity is known as spoofer."An amount of INR 3,22,62,367.05, being the 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," a 41-page order company in question is Patel Wealth Advisors Private Limited (PWAPL) and its directors are Denish Maheshbhai Patel, Mitul Umedlal Vora, Kaushal Vasantrai Patel and Minish Maheshbhai Patel. Barring Minish, all others are promoters as interim order came following a probe into the trading activities of Patel Wealth Advisors for the period between January 1, 2022 and January 31, 2025 to ascertain as to whether its trading activities were in contravention of its order noted that the alleged illegal activities persisted despite repeated letters and communication from NSE even as the exchange initiated proceedings against PWAPL by issuing an SCN dated May 16, 2023."PWAPL was well aware of its alleged spoofing activities but despite the issuance of SCN by NSE, PWAPL has brazenly continued to indulge in unfair trade practices as far as till January 2025," the order noted."The order spoofing is a manipulative, fraudulent and unfair trade practice employed by PWAPL to deceive other market participants and profit from price fluctuation they induced unwary investors in the market. This practice distorted market prices and undermined market efficiency," the order said further.
