I. Indian Securities Law addresses market manipulation and securities fraud through Section 12A of the Securities and Exchange Board of India Act, 1992(“the SEBI Act”) and the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”). The core prohibitions are in Regulations 3 and 4, which bar fraudulent devices, deceptive schemes and manipulative or unfair trade practices in relation to listed and to‑be‑listed securities. The Supreme Court has repeatedly stressed that these provisions are meant to preserve market integrity, prevent “market abuse” and sustain investor confidence.
The legal and regulatory position discussed herein is as of 30 July 2026 and the analysis therefore takes into account subsequent amendments to the PFUTP Regulations and the continuing evolution of the jurisprudence of the Supreme Court and the Securities Appellate Tribunal(“the SAT”). While the Regulations provide an illustrative framework of prohibited conduct, applying the provisions remains fact-sensitive. It depends upon the nature of the transaction, the surrounding circumstances, the intention or knowledge attributable to the person concerned, and the evidence establishing artificiality, deception or manipulation.
Jurisprudence demonstrates that the open-textured provisions of Regulations 3 and 4 of the PFUTP Regulations are capable of addressing a wide range of market-abuse techniques, including pump-and-dump schemes, front-running, marking the close, circular and reversal trading, wash and self-trades, spoofing and layering, cornering and misleading corporate announcements, even where the particular trading technique is not expressly named in the Regulations. The legal characterisation, however, depends upon the facts and the evidence establishing the prohibited element of fraud, manipulation or unfairness.
SEBI detects such conduct through sophisticated surveillance of trade and order data, combined with its statutory powers under Sections 11, 11B and 11C of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and Chapter III of the PFUTP Regulations. Violations attract severe civil consequences (directions, debarment, disgorgement and penalties under Section 15HA) and, in grave cases, criminal prosecution under Section 24, with imprisonment up to ten years and heavy fines.
In SEBI's civil/regulatory jurisdiction (Sections 11, 11B, 15HA of the SEBI Act), the standard of proof is preponderance of probabilities, but applied with a “high degree of probability” in fraud cases, primarily based on circumstantial reconstruction of trading patterns. In criminal prosecutions (Section 24), courts insist on proof beyond reasonable doubt, as clarified in Digamber Vaishnav vs. State of Chhattisgarh, [2019] 2 S.C.R. 844.
II. Legal Framework: SEBI Act and PFUTP Regulations
1. SEBI Act
Section 12A broadly prohibits the use of manipulative or deceptive devices, employment of schemes to defraud and engaging in acts or courses of business operating as fraud or deceit in connection with dealing in listed or proposed‑to‑be‑listed securities.
Sections 11, 11B, and 11C empower SEBI to investigate, call for records, examine persons, and issue wide protective and remedial directions, including restraining access to the market, impounding proceeds, and attaching bank accounts or property.
Section 15HA prescribes a specific civil penalty for “fraudulent and unfair trade practices relating to securities”, with a minimum of ₹5 lakh and a maximum of ₹25 crore or three times the profits, whichever is higher.
Section 24 creates criminal liability for contraventions of the Act, rules, or regulations, with imprisonment up to ten years or a fine up to ₹25 crore, or both; Section 24A allows compounding, and Section 24B permits the grant of immunity in limited cases.
2. PFUTP Regulations
Regulation 3 prohibits any person from employing any device, scheme or artifice to defraud; engaging in any act that operates as fraud or deceit; or using any manipulative or deceptive device, in dealing in securities.
Regulation 4(1) prohibits any person from indulging in a manipulative, fraudulent or unfair trade practice in the securities market. The Explanation (as amended) deems diversion or siphoning of assets, or manipulation of books of accounts of listed companies, as a fraudulent and unfair trade practice.
Regulation 4(2) is a non‑exhaustive deeming provision. It lists practices such as creating a false or misleading appearance of trading, trades without intention to transfer beneficial ownership, circular transactions, dissemination of false information, misuse of client funds, mis‑selling, and, after the 2018 amendment, front running by any person having non‑public information on substantial impending transactions (Reg. 4(2)(q)).
Regulation 2(1)(c) defines “fraud” very broadly, covering knowing misstatements, concealment, reckless representations, false promises and deceptive conduct that deprives investors of informed consent or full participation, regardless of whether there is wrongful gain or avoidance of loss.
The concepts of fraud, manipulation and unfair trade practice, although closely interconnected within the PFUTP framework, are not synonymous. “Fraud” is defined in deliberately broad terms and may include deception, concealment and reckless or misleading conduct.
“Manipulation”, on the other hand, ordinarily involves conduct that distorts or is intended to distort the genuine operation of market forces, including price discovery, volume or the appearance of market activity.
An “unfair trade practice” is a broader regulatory concept directed at conduct which, although not necessarily amounting to conventional fraud, undermines the fairness and integrity of the securities market. The same conduct may, depending upon the facts, fall within more than one of these categories.
The breadth of the PFUTP regime is also informed by the expression “dealing in securities”. Liability is not necessarily confined to the person who physically executes a trade. Depending upon the facts, the regulatory inquiry may extend to persons who originate, facilitate, finance, direct or knowingly participate in a fraudulent or manipulative scheme. The relevant question is therefore not merely who placed the order, but what role the person played in the overall conduct and whether the evidentiary material establishes the requisite connection with the prohibited activity.
III. Common Manipulative Schemes
In securities law, market manipulation refers to conduct that interferes with the free and fair operation of the securities market by creating artificial, false or misleading appearances in relation to price, volume, or trading activity, instead of allowing genuine supply and demand to determine prices.
Under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”), it is unlawful to:
(a) Deal in securities in a fraudulent manner or employ any manipulative or deceptive device or scheme in connection with buying, selling, or issuing securities (Regulation 3).
(b Indulge in manipulative, fraudulent or unfair trade practices, including acts that create a false or misleading appearance of trading, manipulate prices, or involve transactions not intended to effect genuine change in beneficial ownership (Regulation 4).
1. Pump‑and‑Dump Schemes
In a pump‑and‑dump, a group quietly accumulates shares of an ill‑known company and then artificially “pumps” demand by spreading exaggerated or false claims, often via social media, messaging apps, or misleading tips and by orchestrated trading to show abnormal volumes. Once prices spike, they “dump” their holdings on unsuspecting investors, after which the price collapses. This pattern clearly falls within Regulations 3 and 4(1)–(2)(a), (b), (f), (k), since both the price and apparent demand are artificially created by deception.
SEBI orders and decisions of the SAT in circular‑trading and misleading‑disclosure cases (for example, in Victory Trading Corporation and D.M. Trading) reflect how coordinated buying, false news and artificial volumes are treated as serious pump‑and‑dump style market abuse.
2. Front Running (Including Non‑Intermediary Front Running)
“Front running” involves trading based on advance, non‑public knowledge of a substantial impending order, to profit from the predictable price impact. The SAT by order dated 09.11.2012 in Appeal No.216 of 2011 titled Dipak Patel v. SEBI, described front running, by reference to legal dictionaries, as buying or selling securities ahead of a large order using confidential information of that order.
The Supreme Court in SEBI v. Kanaiyalal Baldevbhai Patel, [2017] 14 S.C.R. 268, addressed “non‑intermediary front running”, where relatives or connected persons of a portfolio manager traded ahead of a foreign fund's large orders based on confidential instructions. The Court held that:
a) Information about a large impending order is confidential property of the client, and a person conveying it to a tippee breaches a legal duty of confidence.
b) If the tippee knows of this breach and trades ahead of the client, thereby inducing the client to transact at a worse price, that conduct is “fraud” under Regulation 2(1)(c) and violations of Regulations 3(a)–(d) and 4(1).
The Court expressly held that front running by non‑intermediaries is also within Regulations 3 and 4, notwithstanding the specific intermediary‑focused clause in Regulation 4(2)(q). This ratio builds on N. Narayanan v. Adjudicating Officer, SEBI, [2013] 6 S.C.R. 391, which stressed that “market abuse” covers manipulative devices that create “artificiality” in prices and erode investor confidence.
3. Advancing the Bid / Marking the Close
“Advancing the bid” (or “marking the close”) involves deliberately placing aggressive buy orders (instructions to a stock broker or exchange to purchase a security, asset, or product) near market close with the object of inflating the closing price, thereby improving portfolio valuations, Net Asset Values (NAVs), derivatives (financial contracts that get their value from an underlying asset like stocks, bonds, or market indexes) settlements or margin positions, rather than for genuine investment reasons. Such conduct squarely falls within Regulation 4(2)(a) and (e), as it creates a false or misleading appearance of trading and manipulates the reference or settlement price of the security. The Supreme Court's reasoning in SEBI v. Rakhi Trading Pvt. Ltd., [2018] 1 S.C.R. 937, that orchestrated trades which disturb the price discovery process and exclude other market participants amount to fraudulent and unfair trade practices, applies directly to these “marking the close” strategies.
The characterisation of a transaction as “marking the close” should, however, follow from the evidence rather than merely from its timing. An aggressive order placed near the close is not, on its own, manipulative. The relevant inquiry is whether the order or series of transactions was undertaken with the object or effect of artificially influencing the closing, reference or settlement price, and whether the surrounding circumstances support an inference of manipulation. Depending upon the facts, Regulations 3 and 4(1), read with the applicable clauses of Regulation 4(2), may be attracted.
4. Circular Trading and Wash Trades
In circular trading, connected or coordinated entities repeatedly buy and sell securities amongst themselves, often pursuant to a pre-arranged understanding, to create artificial volume, liquidity or price movements. The legal characterisation of such transactions depends upon the facts and the purpose for which they are undertaken. Regulations 3 and 4(1), together with the applicable provisions of Regulation 4(2), provide the principal statutory framework. Regulation 4(2)(n), in particular, addresses a specific form of circular transaction between intermediaries undertaken to increase commission or to provide a false appearance of trading. It should therefore not be treated as a general statutory definition covering every form of circular trading.
These expressions should also be distinguished. A circular trade ordinarily involves a chain of transactions among connected or coordinated parties; a wash trade generally involves transactions in which there is no genuine change in beneficial ownership; a self-trade occurs where the same person or account is effectively both buyer and seller; a synchronised trade involves orders entered in coordination to achieve a predetermined result; and a reversal trade involves transactions which substantially reverse an earlier position, often between the same parties. These categories may overlap in a particular case, but the existence of a particular trading pattern does not, by itself, establish a PFUTP violation. The surrounding circumstances, economic rationale, coordination, timing, beneficial ownership and effect on the market must be examined.
In SEBI v. Rakhi Trading Pvt. Ltd.(supra), the Supreme Court held that synchronised and reverse trades in index options executed within seconds, at pre‑determined prices, with one party consistently making profits and the other losses, and with no real change in beneficial ownership were “non‑genuine” trades that distorted the price discovery mechanism, violating Regulations 3(a), 4(1) and 4(2)(a).
Earlier decisions of the SAT, such as in Victory Trading Corporation v. SEBI (order dated 22.9.2008 in Appeal No.192 of 2007) and D.M. Trading Pvt. Ltd. v. SEBI (order dated 31.01.2014 in Appeal No.94 of 2013), had already treated large volumes of reversal and circular trades, accounting for a substantial percentage of market volume in a scrip, as classic PFUTP violations.
(ii) Wash trades, i.e. where the same beneficial owner is effectively on both sides of the trade, are treated as a specialised form of such circular/synchronised dealing. Wash trades create false volume and liquidity, affecting other investors' perception of the market for that scrip. They fall within the PFUTP prohibitions - Regulation 4(2)(a), (b) and (n). on creating a false or misleading appearance of trading and on transactions not intended to effect a genuine transfer of beneficial ownership.
5. Synchronised Trading, Self‑Trades, Spoofing and Layering
The Supreme Court and the SAT distinguish between legitimate synchronised trades (for example, negotiated bulk deals executed through the screen in accordance with SEBI circulars) and illegitimate synchronised trades that are pre‑planned to create artificial volumes or prices.
In Rakhi Trading, the Supreme Court held that even in derivatives segments, repeated synchronised and reverse trades that restore beneficial rights to the original party and exclude other investors from participation amount to market manipulation, with no requirement to prove actual impact on an index or that identifiable investors were induced.
Large‑scale self‑trades, where the same client is both buyer and seller, have been characterised by the SAT [e.g. in the Jaypee Capital (order dated 28.06.2019 in Appeal No.333 of 2017) and Gaurav Arora (order dated 28.06.2019 in Appeal No.345 of 2017) cases] as “volume manipulation” when they generate a dominant share of market volume without economic rationale.
Spoofing (placing large, non‑bona‑fide orders to move the order book and then cancelling them) and layering (placing multiple orders at different price levels to create artificial depth) similarly fall within Regulation 4(2)(a) and (e) as acts that create a false or misleading appearance of trading and manipulate reference prices. SEBI's algorithmic‑trading enforcement orders apply the same pattern‑based reasoning approved in Rakhi Trading and Kishore Ajmera to these order‑book abuses.
It is important, however, not to equate every large or cancelled order with spoofing or layering. Securities markets necessarily involve the placement, modification and cancellation of orders for legitimate trading, hedging and liquidity-management purposes. The regulatory inference arises where the order pattern, timing, cancellation behaviour, trading on the opposite side, economic consequences and other surrounding circumstances cumulatively indicate that the orders were not bona fide but were deployed to create a misleading impression of supply, demand or market depth.
Layering is a variant of spoofing in which a trader places multiple orders at different price levels on one side of the book (e.g., several large sell orders above the current offer) to create the impression of heavy supply or demand. Once the market reacts and the price moves, the trader cancels these layered orders and executes genuine trades on the opposite side. Like spoofing, layering artificially influences other participants' perceptions of order book depth and short‑term direction. The PFUTP provisions capture it as false market, misleading appearance of trading, and price manipulation. The broad definition of “fraud” in Regulation 2(1)(c) and the inclusive list of manipulative acts in Regulation 4(2) allow SEBI to characterise such strategies as unfair trade practices.
6. Cornering the Market
“Cornering” generally refers to acquiring control over a substantial portion of the freely available supply of a security, or over the deliverable supply in a derivatives market, thereby creating scarcity and potentially placing other market participants at a disadvantage. Cornering may provide the ability to influence prices, but the mere fact of substantial accumulation or concentration of a position does not, by itself, establish manipulation.
The Supreme Court's recent judgment in Reliance Industries Ltd. and Ors. Vs. Securities and Exchange Board of India, 2026 INSC 585, is particularly important on this question. In examining allegations arising from substantial positions in derivatives, the Court emphasised that cornering, however, may create the ability to manipulate prices, but cannot by itself be equated with manipulation. The intention to manipulate prices must be established from the conduct and transactions in question. Where the positions have a legitimate economic explanation, such as genuine hedging, the mere size of the position or the resulting ability to influence the market may not be sufficient to establish a PFUTP violation.
Accordingly, in a cornering case, SEBI must examine not merely the extent of the position but also the purpose for which it was acquired, the manner in which the position was created and maintained, the conduct surrounding the relevant settlement or transaction, the effect on price and market participants, and other circumstances from which an intention to manipulate may legitimately be inferred. Cornering may therefore constitute an important evidentiary circumstance, but it should not automatically be treated as synonymous with manipulation.
The distinction is important because the PFUTP framework is broad enough to address sophisticated market abuse. Still, its breadth does not dispense with the requirement of establishing the constituent elements of the particular violation alleged.
7. Misleading Corporate Announcements and False Disclosures
Regulation 4(2)(f) and (k) specifically target false or misleading statements or information, and dissemination of such information or advice through any media, which is designed or likely to influence investors' investment decisions.
Companies and their Directors may commit securities fraud by issuing false or misleading disclosures, such as:
a) Inflating revenues, profits, deposits, or receivables.
b) Announcing fictitious contracts, acquisitions, or expansion plans.
c) Concealing material liabilities or adverse information
In N. Narayanan (supra), the Supreme Court upheld SEBI's finding that Directors had published forged quarterly and annual results, and false announcements about agreements with hundreds of theatres; this was held to be “market abuse”, eroding investor confidence and attracting Section 15HA penalties and market‑access bans. The Court emphasised that disclosure and transparency are the two pillars of market integrity, and that SEBI must “deal sternly” with such manipulative and deceptive conduct.
IV. How does SEBI prove manipulation? Building the Evidentiary Chain in PFUTP
Proceedings
SEBI's surveillance relies heavily on a pattern‑based circumstantial analysis:
a) Trading patterns: repetitive, circular, or obviously coordinated trades, including reversals and synchronised orders. This entails examination of order and trade logs (time‑stamps, prices, quantities, counterparty matching, reversals, self‑trades).
b) Order and Trade logs: orders placed within seconds around key events, market close, or large institutional orders.
c) Relationships: common addresses, directors, family links, or other connections between traders/entities.
d) Common records: IP addresses, phone records, bank statements, fund flows, and common addresses or directors, to establish connections between entities.
e) Automated surveillance systems: Algorithmic and high‑frequency trading data, which highlight spoofing, layering and ultra‑fast reversals.
f) Money trail: Funding arrangements and profit‑sharing money flows showing who financed the trades and how profits/losses were allocated.
g) Price/volume impact: whether trades created artificial volumes, false liquidity, or distorted price discovery.
h) Institutional mechanisms: Recent SEBI circulars require asset management companies and intermediaries to maintain alert‑based surveillance, whistle‑blower mechanisms, and detailed internal reviews for front‑running and fraudulent trades, including review of chats, emails, dealing‑room access logs and CCTV footage. Depositories, exchanges and participants must preserve records for extended periods (typically eight years), ensuring evidence is available for investigations and trials.
Proof often depends on circumstances such as timing, pattern, volume, and price behaviour, and on relationships between parties, rather than explicit written agreements.
The standard of proof in SEBI's quasi‑judicial proceedings is preponderance of probabilities, not “beyond reasonable doubt”.
In Securities and Exchange Board of India Vs, Kishore R. Ajmera (2016) 2 S.C.R. 545, cited and applied in the decisions in Rakhi Trading and Kanaiyalal Patel, the Supreme Court accepted that concerted manipulation is ordinarily proved by inference from the volume, frequency, timing and pattern of trades, given the difficulty of obtaining direct evidence of “meeting of minds”.
Chapter III of the PFUTP Regulations (Regulations 5 to 12) and Section 11C of the SEBI Act govern investigations: SEBI may appoint an Investigating Authority, require production of documents, examine persons on oath, and, with court sanction, conduct search and seizure; after investigation, SEBI may issue directions under Regulations 10 to 12 and Sections 11 and 11B.
An important qualification is that circumstantial evidence must be assessed cumulatively and contextually. The presence of one or more suspicious indicators, such as unusual volume, rapid reversals, common counterparties, large positions, order cancellations or close timing, does not by itself establish fraud or manipulation. The evidentiary question is whether the circumstances, taken together, support a cogent inference that the transactions were part of a fraudulent, manipulative or unfair scheme. Legitimate trading explanations must be considered and tested against the totality of the evidence.
V. Civil and Criminal Consequences; Standard of Proof
1. Civil / Regulatory Consequences
The formal standard is the preponderance of probabilities. In allegations involving fraud or manipulation, however, the seriousness of the allegation requires the inference to be supported by cogent and compelling circumstantial material. The Supreme Court's decisions in Kishore R. Ajmera, Rakhi Trading and Kanaiyalal Patel (supra) illustrate how trading patterns, timing, volume, price behaviour, relationships and other surrounding circumstances may cumulatively establish the inference of concerted or manipulative conduct. The expression “high degree of probability” should therefore be understood as describing the quality and cogency of the evidence required in a serious fraud case, rather than as creating a separate standard of proof distinct from the preponderance-of-probabilities standard.
2. Criminal Consequences and the Statutory Bar on Cognisance
Section 24 makes contravention, attempted contravention, or abetment of the SEBI Act, rules, or regulations a criminal offence, punishable with up to ten years' imprisonment or a fine of up to ₹25 crore, or both, in addition to civil penalties. Offences are triable by SEBI Special Courts, and cognisance is taken on a complaint by SEBI under Sections 26, 26A to 26E.
Section 24 of the SEBI Act makes contravention, attempted contravention or abetment of the Act, rules or regulations a criminal offence. Section 26, however, prescribes an important procedural limitation: a court cannot take cognisance of an offence punishable under the SEBI Act except on a complaint made by SEBI or a person authorised by it. The Bombay High Court recently reiterated the significance of this statutory requirement in Vireshh Gangaram Joshi v. State of Maharashtra & Anr., 2026 LLBiz HC (BOM) 458.
The regulatory finding of a PFUTP violation and criminal liability under Section 24 should nevertheless be kept conceptually distinct. The civil standard of proof applicable to such proceedings governs a finding in regulatory or adjudicatory proceedings. Criminal prosecution under Section 24 attracts the criminal standard of proof beyond reasonable doubt. Consequently, establishing a regulatory violation does not, by itself, dispense with the prosecution's obligation to prove the ingredients of the criminal offence in accordance with the applicable criminal standard.
3. Standards of Proof
a) Civil/Regulatory proceedings: As clarified in Kishore Ajmera and reaffirmed in Rakhi Trading and Kanaiyalal Patel, the standard is preponderance of probabilities, but applied with careful attention to circumstantial detail, volumes, timing, repetitive patterns, price behaviour, linkage between entities, given the seriousness of fraud charges. The SAT in Networth Stock Broking similarly emphasised that a “high degree of probability” is required before imputing fraudulent intent.
b) Criminal prosecutions: In line with Digamber Vaishnav, [2019] 2 S.C.R. 844, offences under Section 24 of the SEBI Act require proof beyond reasonable doubt; strong suspicion or even grave doubt is insufficient, and where two reasonable views are possible, the view favouring the accused must prevail.
VI. Limits of the PFUTP Framework
The breadth of Regulations 3 and 4 is an important strength of securities regulation because market abuse evolves faster than prescriptive rules can be drafted. At the same time, an open-textured provision cannot mean that every unusual, aggressive or commercially unsuccessful transaction is a fraudulent or unfair trade practice. The jurisprudence therefore requires a careful distinction between legitimate trading and conduct designed to distort the market.
Three principles emerge. First, the form of a transaction is not necessarily determinative; the substance and surrounding circumstances must be examined. Secondly, circumstantial evidence may be sufficient, but the circumstances must cumulatively support the inference of manipulation or fraud. Thirdly, the mere capacity or opportunity to manipulate is not equivalent to manipulation itself. The recent judgment of the Supreme Court in Reliance Industries Ltd. and Ors. (supra), with respect to cornering, illustrates this important limitation.
The continuing challenge for securities regulation is therefore to maintain an appropriate equilibrium: the law must be sufficiently flexible to address new forms of market abuse while ensuring that legitimate trading strategies are not retrospectively characterised as fraudulent merely because they produce unusual volumes, prices or positions.
VII. To conclude, market integrity and investor protection are the central objectives of Section 12A of the SEBI Act and the PFUTP Regulations. Unfair trade practices and market abuse strike at the heart of the securities market.
Through an open‑textured statutory definition of “fraud”, an illustrative list of prohibited practices, and far‑reaching investigative and remedial powers, SEBI and the courts have been able to address evolving abuses: pump‑and‑dump campaigns, non‑intermediary front running, marking the close, circular and wash trades, synchronised and self‑trades, spoofing and layering and cornering.
Decisions, especially in N. Narayanan, SEBI v. Rakhi Trading Pvt. Ltd., SEBI v. Kanaiyalal Baldevbhai Patel, and SEBI v. Roofit Industries Ltd., underscore that prevention of market abuse and preservation of market integrity are the hallmark of securities law, and that SEBI must deal sternly with manipulative and deceptive practices while operating within the statutory framework of civil penalties and, where appropriate, criminal prosecution.
Author is a Senior Advocate practicing at Supreme Court of India. Views are personal.