Price Manipulation in Option Trading: SEBI’s Silence Raises Concerns

Price Manipulation in Option Trading on NSE and BSE: SEBI’s Silence Raises Alarming Concerns

Mumbai: A once-stable platform for investors to grow their capital and hedge against future risks, India’s stock market now faces a troubling transformation. What was initially meant to provide security through option trading has become a haven for manipulation, undermining the very foundation it was built upon.

The Shift from Hedging to Gambling:

Option trading, which was designed as a means to protect investors from market volatility, has now evolved into a speculative gamble. Historically, options like the “put option” allowed investors to hedge against market downturns. But today, it has turned into a rigged system where the pricing of options is manipulated, undermining its original purpose.

What was once considered a safe investment strategy has now been tainted by corruption, malpractice, and fraud. Investors, trusting the system, have been betrayed by the very markets they believed would secure their financial futures. This shift, orchestrated by brokers, exchanges, and powerful market players, has created an ecosystem where the only winners are those in control of the manipulation. Tragically, when this issue was raised before the Securities and Exchange Board of India (SEBI), they not only ignored the problem but dismissed it outright without any investigation.

This raises a critical question: are we truly safeguarding investors in our capital markets, or has the system become a larger-scale scam?

April 3rd: A Case in Point

On April 3rd, 2025, during the expiry of Nifty options, the market closed at 23,242. The natural value for a 23,300 put option should have been 58 points (23,300 – 23,242). Yet, astonishingly, the price closed at 49.80, revealing clear manipulation.

An even closer examination between 3:26 PM to 3:29 PM on the same day shows that despite a fluctuating 50-100 point difference in the index, the option price remained almost unchanged. This suggests a predetermined pricing structure for options, aligning with the manipulated movement of the index.

This is not the only day, you can check it on any expiry day and can also be checked through back test.

This manipulation mimics match-fixing seen in Cricket betting, where the outcome is rigged long before it occurs. The pricing of options is no longer a market-driven process but is controlled by unseen forces who dictate how the market moves.

SEBI’s Silence: Implicit Consent?

When this issue was presented to SEBI, their response was troubling: complete disregard. The complaints were dismissed without investigation, signaling that the regulatory body might not be performing its duty impartially. SEBI’s silence, especially when it concerns the interests of small investors, raises alarms. It begs the question: is SEBI actively complicit in this widespread manipulation, or is it simply indifferent to the plight of individual investors?

The market forces at play, unchecked by SEBI, raise suspicions that large institutional investors are running a monopoly over the smaller retail investors. In such a situation, the question arises: who truly benefits from this system?

The Broker-Exchange-Market Runner Nexus

The manipulated game of option trading in India is the result of a troubling alliance between brokers, exchanges, and market runners. This unholy trinity has created a dangerous trap for retail investors, who are consistently being fleeced while the system continues to operate without proper oversight.

Despite clear irregularities within major exchanges like NSE and BSE, these institutions hold enough power to prioritize the interests of large institutional investors while turning a blind eye to the small investors. It’s akin to the police department saying, “This area is full of criminals, but rather than apprehending them, we recommend you stay away.”

If small investors can’t trust regulatory bodies, where should they turn?

A Frightening Future for Retail Investors

The current system isn’t merely a series of bad apples; it’s part of a deliberate, systemic fraud. Retail investors are losing their hard-earned money to a system designed to benefit a powerful few, and SEBI’s inaction only enables this exploitation.

Even the most basic principles of fair trading have been compromised. In a recent instance, 98% of retail investors reported consistent losses while a mere 2% profited. Such statistics should raise red flags about the integrity of the system.

And yet, SEBI does nothing to protect these investors or address the underlying problem of market manipulation. It appears that the regulatory body is turning a blind eye to the situation, possibly due to its complicity with the larger players who benefit from this system. If SEBI is not acting as a regulator, what does that mean for the future of India’s capital markets?

The Case for Stronger Regulation:

The situation is dire. The manipulation of options trading prices and the collusion between brokers, exchanges, and market runners has created a dangerous environment for retail investors. To remedy this, strong, decisive action must be taken by SEBI and other regulators.

If the current trend continues, it will mark a dark chapter in India’s financial history, one where the markets are no longer seen as a safe haven for investors but as a rigged game where only the wealthy and powerful thrive.

Conclusion: A Call to Action

There is no room for complacency in India’s financial markets. SEBI must act swiftly to restore transparency and fairness, ensuring that small investors can participate in the market without fear of being exploited. It’s time to ask the tough questions: why is SEBI allowing weekly option trading contracts when they seem to be more of a betting tool than a legitimate hedging strategy? How is this benefiting the average investor?

It’s also crucial to address the question of why options trading continues to thrive in a volatile market, with daily fluctuations of up to 3000 points, causing widespread losses. The Black-Scholes model used by exchanges is clearly unsuitable for a market as volatile as India’s.

Until these issues are tackled head-on, India’s stock market will continue to be a dangerous, unregulated playing field for small investors. The time for change is now, and it requires a concerted effort from SEBI, exchanges, and the entire regulatory framework.

The Numbers Speak for Themselves:

• 98% of retail investors are losing money in the current market environment.
• Only 2% of traders are consistently profiting, raising questions about the integrity of the system.
• The market dropped nearly 3,000 points on April 7, 2025, but recovered only 1,500 points the next day – an example of extreme volatility that no ordinary investor could have predicted or profited from, but millions of small investors were ruined.

These figures make it abundantly clear that the current system is flawed and in urgent need of reform.

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CA Gopal Rathi | Past Chairman Ratlam ICAI | Contact : CAGOPALR@GMAIL.COM