The market regulator, Securities and Exchange Board of India (SEBI), has discovered a unique case of handling stock price where a broker named Patel Wealth Advisors and its four directors used a trick called ‘spoofing’ to make illegal profits of Rs 3.2 crore over more than three years. SEBI (the market regulator) has ordered them to return the illegal money through a temporary order. SEBI also banned all five from trading in the market until its investigation is finished and a final decision is made.

Spoofing is a type of illegal activity in which an offender (the spoofer) places several orders, including both buying and selling the stock at a significantly higher or lower price than the dominant price in the market. The spoofing order is an order that remains visible to everyone in the market, showing both the price and the amount of shares available for buying or selling. This lets other traders see how many shares are being offered.

Following the first order placed, the spoofer places a much smaller order on the opposite side at a price closer to the current market price. By completing the second order, the spoofer profits by tricking other market players. According to Sebi rules, spoofing is an illegal attempt to manipulate stock prices.

The investigation done by the regulator revealed that for more than three years, individuals at Patel Wealth Advisors attempted to spoof 193 stocks with a total of 292 attempts. In one such case, the broker placed a total of 548 orders. Among them, 543 were spoofing orders for around 5.4 crore shares of Coffee Day at nearly an average of 20-26% below the market order. These were completely shown. Only five orders were completed, totalling around 52,000 shares, at prices very close to the current market price. The rest of the orders were cancelled.