Sebi bars stock broker over 'order spoofing' scam

India's first big spoofing case: In the country's biggest spoofing case, the market watchdog Securities and Exchange Board of India (SEBI) on Monday debarred broking firm Patel Wealth Advisors (PWA) and its four directors from trading in the securities market for alleged order spoofing. The entity has been accused of realising illicit profit amounting to Rs 3.22 crore through spoofing in both the cash as well as derivative segments.

The aforesaid peculiar pattern of trading has been allegedly followed by PWAPL over 292 scrip contract days spread over 173 different scrips, noted the SEBI's ex-parte interim order.

Reportedly, all of the spoofing activity was engaged in by PWA from April 2019 to March 2022.

The examination of the trading activities of the stock broker revealed that the broker allegedly placed multiple fully disclosed buy/ sell orders in various scrips with large quantities at prices significantly below/ above the prevailing market price, without intention of execution

Earlier in 2023, SEBI caught partnership firm Nimi Enterprises for engaging in order spoofing but that was restricted to the cash segment and lasted for eight month.

What is order spoofing?

Order spoofing is a type of manipulative trading activity which involves placing bid or ask orders, with the intent of cancelling the said orders before execution while simultaneously executing trades on the opposite side of the book. The side (i.e. buy or sell) on which such large orders are placed and cancelled is known as “Spoof” side and the suspect trader involved in such kind of activity is known as “Spoofer”. 

“Order spoofing is a manipulative, fraudulent and unfair trade practice employed by PWA to deceive other market participants and profit from price fluctuation they induced on unwary investors in the market. This practice distorted market prices and undermined market efficiency,” noted Sebi whole-time member Kamlesh C. Varshney in the order.

How did order spoofing happened?

As per Zee Business research inputs, the brokerage placed 548 'buy' orders in Coffee Day shares. Out of the total 548 trades, 543 were spoofing with the orders placed at an average price of 20-26 per cent below the market price. However, only 5 orders were executed. Additionally, spoofing trades also took place in Syrma SGS Tech