The Danger Of SEBI’s Uneven Use Of Enforcement Machinery

On August 19, the regulator issued an order against a foreign portfolio investor and a domestic broker for alleged manipulation during the Closing Auction Session on the BSE Sensex expiry of August 13. According to the order, aggressive orders in constituent stocks distorted the Indicative Equilibrium Price and benefitted their expiry day options positions. SEBI impounded the alleged gains and imposed interim restraints just within six days of the trades. Whatever the ultimate merits of the allegations, the speed of the response is striking.

Speed Of Regulatory Action

The significance goes beyond this particular case. It establishes that SEBI possesses the technology, data, expertise, and institutional capacity to analyse sophisticated trading and act almost immediately.

That makes its struggles in its handling of other serious market misconduct difficult to fathom.

Consider another major case involving a global quantitative trading firm. SEBI’s own order records that its investigation into trading, starting from January 2023, began only in April 2024, and SEBI’s interim order was finally issued only in July 2025; that too by a department that doesn’t deal with market manipulation. The order alleged manipulation of index levels through coordinated trading across cash, futures, and options markets, directing the impounding of a humongous ₹5,000 crore in alleged unlawful gains from four trading days. The foreign trading firm has challenged the action.

Questions Over Delayed Action

The issue is not whether SEBI eventually acted. The issue is why an allegation involving thousands of crores and wide market impact required such a prolonged process before interim action was taken. While enforcement across borders does invite procedural friction, that administrative reality cannot excuse multiyear vacuums when systemic stability is on the line.

More importantly, what happened during that period?

If a sophisticated foreign trading firm could allegedly influence cash market prices while holding substantial positions in index derivatives, the obvious regulatory question is whether similar patterns existed on other trading days or among other large participants. SEBI has the data. It should tell the market whether it examined that data systematically and what it found.

Retail Losses Add Pressure

This question becomes more pressing when viewed against SEBI’s own findings on retail losses. Its study found that 1.13 crore individual traders incurred a combined net loss of ₹1.81 lakh crore in equity derivatives during FY22 to FY24, with 91% of individual traders losing money in FY24 alone.

Such retail losses impose a much higher duty on the regulator to investigate whether sophisticated participants enjoyed structural or informational advantages that ordinary investors did not.

And this is where SEBI’s silence becomes troubling. The regulator has been conspicuously unwilling to provide the market with a clear account of whether it has looked beyond the specific trading days identified in the order involving this quantitative firm, nor has it adequately addressed persistent concerns about possible information asymmetry benefiting large institutions. A market regulator cannot simply identify a tip of a sophisticated strategy, punish the conduct, and consider the job done. It must ask whether the strategy was systemic and whether the market was repeatedly exposed to the same risk. Even more troubling is the fact that action in this allegedly catastrophic manipulation does not even find mention in SEBI’s last annual report.

HDFC Bank Episode

The HDFC Bank episode raises a parallel question about regulatory responsiveness.

In March 2026, the abrupt resignation of HDFC Bank chairman Chakraborty, citing differences over values and ethics, triggered an 8.7 per cent fall in the bank’s share price and wiped out roughly ₹1.5 lakh crore in market value.

This was not a routine corporate event. A chairman resigning publicly over ethics, followed by massive destruction of shareholder wealth, warranted an urgent and transparent examination. Investors should not have to live for months with speculation over whether there was a genuine governance problem or something more serious.

Uneven Use Of Enforcement

Then there is SEBI’s uneven use of its enforcement machinery.

Searches and intrusive investigations are frequently deployed in smaller alleged pump-and-dump cases where the financial impact may be measured in just tens of crores. Yet, when sophisticated market misconduct allegedly involves large funds, enforcement can appear considerably slow and prolonged. In one fund house matter, market participants have questioned why proceedings have remained pending despite searches reportedly yielding significant material. If SEBI has evidence, it should proceed; if not, it should close the matter. What is difficult to justify is indefinite regulatory limbo.

There is a larger problem here.

SEBI, increasingly, gives the impression of being caught in a pendulum of extremes: swinging between heavy-handed overreach on minor technical infractions (for example, the Deemed Public Issue cases under the 1956 Companies Act) and paralysed deliberation on massive structural threats.

Need For Consistent Enforcement

It can move within six days when it chooses to. It can analyse and trace complex and enormous transactions, conduct searches, and freeze assets. Therefore, the explanation that complex cases necessarily require years to resolve is not a sufficient answer.

Enforcement credibility is measured by whether the regulator applies the same urgency, scrutiny, and institutional courage to every serious threat to market integrity, whether involving powerful foreign funds, large domestic institutions, or allegations of information asymmetry.

The August 19 Closing Auction Session order is welcome. But it exposes SEBI’s uncomfortable contradiction. The question is no longer whether SEBI can act swiftly. It plainly can. The question is why it does not do so consistently and where it matters.

Market participants need a regulator that is predictable, proportionate, transparent, and even-handed.

The danger is not that SEBI is too weak; it is that SEBI chooses to be selectively strong.

The writer is a retired IRS officer and Ex-Chief of Surveillance at SEBI. Advisor to corporates, market participants and tech entrepreneurs.

Published on: Wednesday, August 26, 2026, 09:17 PM IST