How SEBI cracked India's first major spoofing case
What's the story
The Securities and Exchange Board of India (SEBI) has cracked down on stock broker Patel Wealth Advisors Pvt Ltd (PWAPL) for "spoofing."
The practice involves placing large, fake orders, which are visible to the public, but much lower than the market price. The idea is to create a false sense of demand.
SEBI's investigation found PWAPL indulged in such activities across 173 scrips over 292 scrip-days, resulting in 621 unique spoofing instances.
Regulatory action
Order issued against PWAPL and its directors
In an order passed on April 28, SEBI has ordered PWAPL and its associates to pay back over ₹3.22 crore of illegal gains earned through spoofing.
The firm has been barred from accessing the securities market from its proprietary account, while its directors have been banned from participating in the market.
This is a major step in India's battle against manipulative trading practices.
Scale of spoofing
Investigation reveals widespread spoofing activities
SEBI's probe into PWAPL's spoofing was three years long and included cash and derivatives segments.
Although this is the first time India has witnessed a large-scale spoofing case, a smaller one involving Nimi Enterprises was flagged in 2023.
The regulator discovered that PWAPL employed this tactic several times a day, creating a false sense of demand to entice investors into participating in what they thought was a genuine rally.
Definition and impact
SEBI's explanation of order spoofing
SEBI's Whole-time Member Kamlesh Varshney explained the concept of order spoofing in his statement.
He said it is a manipulative trading activity where bid or ask orders are placed with the intent to cancel them before execution, while executing trades on the opposite side.
This creates an asymmetry in the order book, influencing other market participants to trade, and allowing the spoofer to make unlawful gains when prices move.
Urgent action
Need for interim order against PWAPL highlighted
In his statement, Varshney emphasized the need for an interim order against PWAPL as they have been repeatedly spoofing on both buy and sell sides.
He warned that allowing PWAPL to continue spoofing would severely erode the integrity of the securities market and harm investors' interests.
Varshney further stressed that PWAPL used order spoofing as a manipulative, fraudulent, and unfair trade practice to deceive other market participants.