The Danger Of SEBI’s Uneven Use Of Enforcement Machinery

On August 19, a regulatory body issued a directive against a foreign investor and a domestic broker accused of market manipulation during a BSE Sensex closing auction on August 13. The regulator claimed that their aggressive trading orders altered the indicative equilibrium price, benefiting their options positions. Within six days, SEBI seized the alleged gains and imposed interim restrictions.

This swift response reveals the regulator's technological, data, and analytical capabilities. However, the same body has shown considerable delays in other major cases. A global quantitative trading firm faced a multi-year investigation, only resulting in an interim order in July 2025; this was a department not responsible for market manipulation.

SEBI has the data necessary to examine such cases, but it has been silent on whether it has investigated other potential patterns. The regulator has also been cautious about disclosing whether it has investigated whether similar patterns existed among other large participants. Retail losses have been a significant concern, with 1.13 crore individual traders losing a combined net of ₹1.81 lakh crore in equity derivatives between FY22 and FY24.

The regulator's lack of transparency regarding its investigation into these losses and possible information asymmetry benefiting large institutions is troubling. SEBI's enforcement actions also appear inconsistent. While minor alleged pump-and-dump cases may result in swift actions, sophisticated market misconduct involving large funds can take years.

This inconsistency raises questions about the regulator's commitment to ensuring market integrity consistently. The August 19 Closing Auction Session order is a step in the right direction, but it highlights SEBI's contradictory approach to enforcement.