How the SENSEX Closing Auction Was Allegedly Gamed, and Why SEBI’s Swift Action Matters for Price Discovery

India’s newly introduced Closing Auction Session was designed to improve price discovery and make the market close more transparent. Barely 10 days after its implementation, SEBI detected what it describes as prima facie manipulation of the SENSEX closing process on expiry day. The episode reveals both a potential weakness in the auction mechanism and, more importantly, how the transparency of CAS helped the regulator detect the activity and respond within days.

India’s Closing Auction Session, or CAS, has received its first major real-world stress test.

The new mechanism became effective from August 3, 2026, changing how the closing prices of stocks covered by the framework are determined.

Just 10 days later, on August 13, which was also a weekly SENSEX derivatives expiry, SEBI surveillance detected unusual movements in the indicative SENSEX equilibrium price during the closing auction.

On August 19, SEBI issued a 46-page ex-parte interim order against Copthall Mauritius Investment Limited and Mansi Share and Stock Broking Private Limited, alleging prima facie manipulative trading during CAS.

What makes the case particularly interesting is not merely that an attempt was allegedly made to influence the market close.

It shows how an institution with a sufficiently large derivatives exposure could potentially use orders in the underlying SENSEX stocks to influence the indicative index level.

It also shows why SEBI’s decision to move from the old VWAP-based closing mechanism to CAS could ultimately make such activity easier to detect.

First, What Exactly Changed With CAS?

Before CAS, closing prices were determined using a Volume Weighted Average Price, or VWAP, methodology.

VWAP is simply the average traded price weighted by the quantity traded at each price.

Suppose 100 shares trade at Rs 100 and another 500 shares trade at Rs 105.

The VWAP would be:

(100 × 100 + 500 × 105) / 600 = Rs 104.17

Even though the larger transaction occurred at Rs 105, the calculated price would be Rs 104.17 because all the traded volume is considered.

VWAP therefore reduces the influence of a single last trade.

But it does not completely eliminate the possibility of influencing the closing price through aggressive buying or selling during the calculation period.

CAS approaches the problem differently.

Instead of determining the closing price from a weighted average of trades, the exchange collects buy and sell orders and searches for one equilibrium price at which the maximum quantity of shares can be executed.

That equilibrium price becomes the closing price.

How the Closing Auction Works

Under the new framework, normal trading in covered stocks stops at 3:15 pm.

A reference price is calculated and CAS begins at 3:20 pm. The auction continues until 3:30 pm, with a random closure between 3:28 pm and 3:30 pm.

Orders during CAS are generally restricted to a price band of plus or minus 3% from the reference price.

After the auction, a single equilibrium price is discovered where the maximum quantity of shares can be executed.

Consider a simplified example.

Suppose the reference price of a stock is Rs 100.

One buyer is willing to buy 500 shares at Rs 105, another wants 300 shares at Rs 104, and another wants 200 shares at Rs 103.

On the sell side, different quantities are available at Rs 100, Rs 103, Rs 104 and Rs 105.

The fact that somebody is willing to buy 500 shares at Rs 105 does not automatically make Rs 105 the closing price.

The exchange calculates the executable quantity at different price levels.

If 300 shares can be matched at Rs 103, 700 shares at Rs 104 and only 500 shares at Rs 105, then Rs 104 becomes the equilibrium price because that is where the maximum quantity can be executed.

This is the basic idea behind CAS.

A single aggressive trade should not directly determine the closing price.

But that does not mean the auction itself cannot be influenced.

The Weak Point: Manipulating the Equilibrium

During CAS, the exchange disseminates information such as the Indicative Equilibrium Price, cumulative buy and sell quantities, order imbalance and the indicative index.

The Indicative Equilibrium Price, or IEP, therefore keeps changing as participants place, modify and cancel orders.

A sufficiently large buy order can alter the demand side of the auction.

A sufficiently large sell order can alter the supply side.

Now apply this concept across an index.

There is no separate closing auction for the SENSEX itself.

The closing value of the index is derived from the closing prices of its constituent stocks. SEBI’s framework states that the settlement price of the underlying index on expiry is based on the closing prices of its constituents.

Therefore, if a participant can simultaneously influence the equilibrium prices of multiple SENSEX constituents, it can potentially influence the final SENSEX value.

And on an options expiry day, even a relatively small difference in the final SENSEX settlement can dramatically change derivative payoffs.

That appears to be the central mechanism uncovered by SEBI.

What Happened on August 13?

At 3:15 pm, the SENSEX reference price stood at 77,829.60.

The eventual CAS-derived closing value was 78,079.96, rounded to 78,080 for SEBI’s calculations.

But during those few minutes, the indicative SENSEX experienced three extraordinary spikes.

The chart of SEBI’s order shows just how abnormal these movements were. The indicative SENSEX repeatedly jumped hundreds of points within seconds during the auction.

SEBI then examined the underlying order book.

That is where the story becomes far more interesting.

Spike 1: Rs 66 Crore of Buy Orders Arrive in Seconds

Between 3:20:41 and 3:20:43, the SENSEX IEP jumped more than 362 points.

During those two seconds, 86 limit buy orders worth approximately Rs 66.64 crore were placed.

Copthall alone accounted for approximately:

Rs 66.58 crore

That represented an extraordinary:

99.91% of the total limit-buy order value.

More importantly, Copthall placed orders across the SENSEX constituents at prices close to 3% above their reference prices, near the maximum permissible CAS limit.

This matters because buying one SENSEX stock aggressively may move that stock’s indicative equilibrium price.

Aggressively bidding across the entire basket can potentially move the indicative prices of multiple constituents simultaneously.

That, in turn, can move the indicative SENSEX.

The Same Pattern Appeared Again

The activity was not restricted to the first spike.

During the second spike, Copthall accounted for approximately:

Rs 126.59 crore, or 96.09% of the relevant limit-buy order value.

During the third spike, it accounted for:

Rs 98.12 crore, or 85.21% of the relevant limit-buy order value.

Again, the orders were placed aggressively near the upper CAS price limit and across SENSEX constituents.

SEBI observed that the coordinated placement of buy orders across SENSEX constituents at unusually high prices indicated, prima facie, an intention to increase the SENSEX IEP.

But this raises an obvious question.

Why Would Someone Intentionally Buy Stocks at 3% Above the Reference Price?

Normally, a buyer wants the lowest possible price.

Paying substantially above the prevailing indicative price makes little economic sense if the objective is simply to acquire shares.

The answer becomes clearer when Copthall’s derivatives positions are examined.

SEBI found that Copthall held expiry-day SENSEX positions involving long calls and short puts at the 77,500, 78,000 and 78,500 strikes.

Economically, this resembles a synthetic long position.

The higher the SENSEX settlement, the better the payoff.

Suddenly, buying the underlying stocks at expensive prices can have an entirely different economic rationale.

The cash-market transaction itself does not necessarily have to make money.

It can potentially become the cost of influencing the settlement price of a larger derivatives position.

Spend Rs 57 Lakh in Cash, Potentially Gain Rs 2.96 Crore in Derivatives

This is perhaps the most striking number in SEBI’s order.

SEBI estimated that Copthall incurred approximately Rs 57 lakh in price variance in the cash segment.

But the allegedly higher SENSEX settlement resulted in approximately Rs 2.96 crore of wrongful gains or losses avoided in derivatives.

SEBI used 77,840 as an estimated fair SENSEX settlement based on the Nifty 50’s movement that day.

The actual SENSEX settlement was:

78,080

That is a difference of approximately:

240 points

At first glance, 240 SENSEX points may not look extraordinary.

On expiry day, however, those 240 points can completely change the payoff of options sitting close to the strike price.

For example, Copthall’s 78,000 calls would have expired worthless if the SENSEX had settled at 77,840.

At 78,080, those calls instead had an intrinsic value of 80 points.

More importantly, the short 78,000 puts would have had an intrinsic value of 160 points at a 77,840 settlement, requiring Copthall to make a payout.

At 78,080, those puts expired worthless.

SEBI calculated the total prima facie wrongful gain and loss avoidance at Rs 2.9616 crore.

This explains the asymmetric economics of expiry-day manipulation.

A participant may be willing to lose money in the underlying cash market if shifting the settlement level produces a much larger gain in derivatives.

Then Came a Player Who Allegedly Wanted SENSEX Lower

While Copthall allegedly benefited from pushing the SENSEX higher, Mansi Share and Stock Broking allegedly had almost the opposite incentive.

Between approximately 3:21 pm and 3:26 pm, Mansi placed sell orders worth around Rs 145.65 crore.

Large sell orders were placed in stocks including Reliance Industries, SBI, Eternal, ICICI Bank, Larsen & Toubro and Infosys.

Some of these orders were placed between roughly 1.5% and 3% below their reference prices.

These orders exerted downward pressure on the indicative equilibrium prices of the stocks and consequently on the indicative SENSEX.

Then something remarkable happened.

Rs 143 Crore of Sell Orders Vanished in Seconds

Between 3:26:02 and 3:26:05, Mansi cancelled 12.65 lakh shares worth approximately Rs 143.44 crore.

Essentially the entire large sell block disappeared within seconds.

According to SEBI, removing these sell orders caused an immediate 232.96-point surge in the SENSEX IEP.

The effect was also visible in individual stocks.

After Mansi’s sell orders were cancelled, SEBI observed upward moves including:

LT: +2.89%

Eternal: +1.08%

ITC: +0.90%

Titan: +0.63%

Infosys: +0.50%

Reliance: +0.34%

SBI: +0.27%

This provided SEBI with another important clue.

Why place such large sell orders at unusually low prices and then cancel virtually all of them?

Once again, the derivatives book provided a possible economic explanation.

Mansi Was Holding SENSEX Puts

Mansi held expiry-day put positions at the 77,800, 77,900 and 78,000 strikes.

Put options benefit when the underlying index falls.

According to SEBI, during the approximately five-minute period in which Mansi’s aggressive sell orders were suppressing the SENSEX IEP, the firm exited its outstanding put-option positions.

After the puts were exited, the large sell orders were cancelled.

The SENSEX ultimately settled at 78,080, meaning those puts would otherwise have expired worthless.

SEBI calculated Mansi’s prima facie wrongful gains at approximately:

Rs 71.65 lakh.

One Closing Auction, Two Completely Opposite Strategies

This is what makes the August 13 episode so fascinating.

The two entities allegedly wanted opposite things from the same closing auction.

Copthall’s Alleged Strategy

In Copthall’s case, the final settlement itself mattered.

The key difference is that Mansi did not necessarily require the SENSEX to finally close lower.

According to SEBI’s preliminary findings, it only needed the SENSEX to remain temporarily depressed long enough to exit the put positions at favourable prices.

SEBI has also specifically stated that the available evidence does not prima facie indicate that Copthall and Mansi acted in concert.

Instead, the regulator’s preliminary view is that each participant attempted to push the market in the direction favourable to its own derivatives exposure.

This Is Essentially Cross-Market Manipulation

The broader lesson goes beyond these two entities.

The economic exposure in an index derivatives position can be considerably larger than the cost required to temporarily influence the underlying cash market.

This creates a potential incentive to use one market to influence another.

The basic structure is:

Take a large derivatives position

↓

Influence the underlying cash-market constituents

↓

Move the benchmark or settlement value

↓

Benefit from the derivatives payoff

SEBI’s preliminary findings describe essentially this economic linkage, connecting large aggressive orders in SENSEX constituents with changes in the IEP, the eventual SENSEX value and additional F&O profits or losses avoided.

But Wasn’t CAS Introduced to Prevent Manipulation?

Yes, but there is an important distinction.

CAS makes certain forms of closing-price manipulation harder.

It does not make manipulation impossible.

Under a VWAP mechanism, a participant could attempt to influence the closing average through aggressive trading during the relevant calculation window.

Under CAS, executing one large trade at an extreme price does not automatically determine the closing price.

Instead, a participant seeking to influence the close would need to alter the auction equilibrium itself.

That means influencing the aggregate relationship between demand and supply.

For an index, the challenge is even greater.

Manipulating one constituent may have limited impact.

A participant may need to place coordinated orders across several major constituents, or potentially across the entire basket.

And this is precisely where CAS appears to have another advantage.

Such behaviour creates a very visible footprint.

CAS May Actually Make Manipulation Easier to Detect

SEBI says surveillance has been monitoring CAS every day since its implementation.

The regulator specifically notes that CAS was designed to improve price discovery and transparency and provides greater ability to identify potential manipulation compared with the earlier VWAP system.

The August 13 episode illustrates why.

SEBI could reconstruct:

1. Who placed the orders.
2. Exactly when the orders were placed.
3. Which