Sebi Bans Wealth Advisors for 3cr Spoofing Gains

The Securities and Exchange Board of India (Sebi) has found a significant instance of price manipulation in the shares of Patel Wealth Advisors and its four directors, who are said to have used the unlawful method called 'spoofing' to earn illegal profits of Rs 3.2 crore in more than three years. As a response, Sebi has directed an interim order for disgorging these illegal gains and has put the five entities on hold from being a part of the market until the probe is finished and a final ruling is issued.

Spoofing is an illegal act in which the offender, the spoofer, makes a huge order (buy or sell) of a stock at much higher or lower price than the prevailing market price. This order of spoofing is made public to all participants in the market, as it is reflected in the order book, which indicates the quantity of shares to buy and sell.

After the first huge order, the spoofer then executes a much tiny order on the other side of the first order at a price that is nearer to the market price. Through the execution of this second order, the spoofer gains as it manipulates the psychology of the other market participants. Based on Sebi rules, spoofing is an attempt to manipulate stock prices and is illegal.

The regulator's probe found that within a period of three years, traders at Patel Wealth Advisors attempted 292 spoofing attempts in 193 stocks. In one case, the broker placed 548 buy orders, of which 543 were detected as spoofing orders for almost 5.4 crore shares of Coffee Day, priced at an average of 20-26% lower than the market order. While the orders were made completely public, just five orders, with about 52,000 shares, were actually made at prices close to the then current market price, with the rest canceled.