Sebi bans broker over Rs 3cr 'spoofing' gains

MUMBAI: Markets regulator Sebi has detected a unique case of stock price manipulation where a broker, Patel Wealth Advisors , and its four directors used the ' spoofing ' technique to make illegal gains worth Rs 3.2 crore over more than three years. Sebi ordered disgorgement of the illegal gains through an interim order. The regulator also banned the five entities from the market until its investigation is over and a further order is passed.

Spoofing is an illegal technique where the perpetrator, the spoofer, places a huge order (buy/sell) for a stock at a substantially higher or lower price than the prevailing market price. The spoofing order is an open order, meaning the order size and the price are visible to everyone looking at the order book, which shows how many shares are up for buying and how many for selling.

Subsequent to the first order, the spoofer also places an order for a substantially smaller volume on the opposite side of the original order at a price closer to the market price. By executing the second order, the spoofer makes a profit by playing on the psychology of the market players. Under Sebi rules, spoofing is an attempt to manipulate stock prices and an illegal act.

The investigation by the regulator found that over three years, people at Patel Wealth Advisors attempted spoofing in 193 stocks with a combined 292 attempts. In one of those cases, the broker put in 548 buy orders, of which 543 were spoofing orders for nearly 5.4 crore shares of Coffee Day at an average of 20-26% below the market order. These were fully disclosed. It executed just five orders aggregating about 52,000 shares at prices very close to the then prevailing market price. The rest were cancelled.