CAS case: JPMorgan unit likely to argue Sebi breach was technical, says report

A JPMorgan Chase & Co unit facing regulatory action in India is likely to argue that the alleged breach was technical in nature rather than an attempt to manipulate the market, according to a Bloomberg report citing sources.

Copthall Mauritius Investment Ltd, which is registered with the Securities and Exchange Board of India (Sebi) as a foreign portfolio investor, plans to seek clarifications on the regulator's allegations but is unlikely to appeal the order for now, the report added.

Sebi last week barred the JPMorgan unit from India's capital markets in its first enforcement action concerning alleged manipulation of the country's new closing auction mechanism (CAS) for stock prices.

According to Sebi's interim order, Copthall and Mumbai-based Mansi Share and Stock Broking Ltd allegedly carried out manipulative trades during the closing auction window on August 13 to influence the indicative equilibrium price of the BSE Sensex index, benefiting their options positions linked to the benchmark.

The regulator imposed a penalty of Rs 3.7 crore on each entity, describing the amount as unlawful gains, and barred both from accessing the capital market.

The trading ban will be lifted once the entities return the alleged unlawful gains to Sebi, Sebi board member Kamlesh Chandra Varshney said in the order. He also directed a detailed examination of the trades, saying it should be completed expeditiously and independently of the findings in the interim order.

Both entities have 21 days to respond to Sebi's allegations and can seek a personal hearing.

Bloomberg reported that JPMorgan is also considering an internal assessment to identify any compliance gaps.

Copthall is separate from JPMorgan India Pvt, which is registered with Sebi as a stock broker and merchant banker. The regulatory order against Copthall therefore does not directly affect JPMorgan's activities through its Indian unit.

Copthall acts as a conduit for investments by JPMorgan's global clients into India, according to Bloomberg.