Decoding Synchronised, Reversal And Circular Trades: Judicial Insights In Recent Years

Stock markets thrive on trust, where trades are not just transactions between willing buyers and sellers but are the foundation of price discovery and investor confidence. But what happens when trades are only an illusion of demand and supply? In an era defined by algorithm-driven trading, these practices have come under heightened scrutiny: (i) synchronized trading; (ii) reversal trading; and (iii) circular trading. While these transactions may resemble legitimate market activity, in certain contexts they reveal deliberate attempts to mislead investors and fall squarely within the mischief contemplated by Section 12A of the Securities Exchange Board of India Act, 1992 ("SEBI Act"), and Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations").

For market participants, understanding where the law stands today is essential for guiding trading practices, avoiding and responding to regulatory actions, and implementing effective mechanisms. This article aims to elucidate these concepts, outline the key criteria laid down by the Supreme Court of India for identifying market manipulation, and examine how the Securities Appellate Tribunal (SAT) has interpreted and applied these principles in recent years.

Synchronized, reversal and circular trading

For the uninitiated, synchronized trading refers to transactions where buy and sell orders are intentionally matched in terms of price, time, and quantity. They sit between lawful market-making for liquidity-enhancing convenience and impermissible market manipulation for wrongful gains.

Reversal trades are transactions where the buyer and seller reverse their trades with each other resulting in no genuine transfer of ownership, to create artificial volume, mislead investors, or manipulate the price.

Circular trades usually involve a group of participants repeatedly buying and selling the same securities among themselves, with little or no change in beneficial ownership. These tantamount to market manipulation when they generate artificial volumes and distort the integrity of the market.

Key criteria identified by Courts and Tribunals

In landmark rulings such as Ketan Parekh v. SEBI¹, SEBI v. Kishore R Ajmera², SEBI v Rakhi Trading³, and Nirmal Bang Securities Pvt. Ltd. v. SEBI⁴, Courts/Tribunals have distilled certain guiding criteria to determine whether synchronized, reversal or circular trades amount to market manipulation. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference must be drawn. Some of the factors which evince the intention of the parties involved are:

• Whether there is genuine transfer/change of beneficial ownership of the asset;
• The nature, frequency, value, and volume of trades, especially when repetitive in character;
• Proximity of time and pattern of matching buy and sell orders;
• Whether there is consistent profit and loss booking between the same parties, without any significant change in the value of the underlying scrip/ asset;
• Collusion or prior meeting of minds between traders to manipulate market prices or create false appearances (often inferred from circumstances rather than direct evidence);
• The prevailing market condition in which the trades were executed, and whether they distorted price discovery;
• Application of preponderance of probabilities so far as adjudication of civil liability arising out of violation of the SEBI Act or the regulations framed thereunder is concerned; and
• Recognition that tax structuring or planning cannot justify manipulative trades.

Application and interpretation by the Hon'ble Securities Appellate Tribunal in recent years (SAT)

SAT has consistently ruled on various cases involving synchronized and circular trading, reinforcing and clarifying the principles laid down in earlier rulings. In this article, we discuss certain notable judgments.

A. Cases where SAT did not find manipulation

1. AKG Securities and Consultancy Ltd v. Securities Exchange Board of India ("SEBI") and other connected appeals⁵ (July 28, 2025)
   SEBI alleged that the appellants acted in concert to manipulate the cash segment price, impacting the futures settlement price, as they contributed 66.11% of trading volume in a specific time window. However, SAT held that there was no evidence of any direct or indirect connection, communication, or coordination among the appellants during the relevant period. Subsequent transactions between parties several years later could not establish concerted action. SAT noted that Biocon was a highly liquid scrip, and mere similarity in trading patterns, timing, or quantity could not, by themselves, prove price manipulation.
2. Jio Financial Services Ltd. v. SEBI⁶ (December 13, 2023)
   The appellant, a wholly owned subsidiary of Reliance Industries Limited (RIL) was penalized by SEBI for allegedly executing manipulative Nifty Put option trades at a discount with a known counterparty. SEBI claimed this amounted to synchronized trading and could mislead other investors. The appellant contended the trades were bona fide, executed to close positions following a WTM order debarring RIL from dealing in equity derivatives. SAT found no evidence of pre-arranged trades or manipulative intent, distinguishing the case from Rakhi Trading (supra) and Ketan Parekh (Supra), on the ground that in the case of Jio Financial Services there was genuine transfer of beneficial ownership and no factors like frequent trades, twisting reversal existed. It is trite law that a trade cannot be manipulative simply because it is away from the fair value. Resultantly, SAT quashed the impugned order issued by SEBI stating that, "to hold a simple one way trade as manipulative when it is not a circular or reversal trade and in the absence of any shred of evidence of mutual arrangement with a motive to manipulate the market", cannot be sustained.
3. Manjulaben Bhaveshkumar Rangee v. SEBI⁷ (2023)
   SEBI investigated trades triggered by bulk SMS buy recommendations that caused unusual volume spikes, alleging that they enabled exits for certain entities. SEBI also found that the noticees were connected and had executed trades almost simultaneously, with buy and sell orders placed within a minute, and therefore held that the transactions were synchronised trades undertaken solely to inflate trading volumes. However, SAT found the appellant's only link was an indirect relation through her brother-in-law, which was too remote to show collusion or intent. With just one trade instance and no clear meeting of minds, SAT held that synchronized or circular trading was not proved and set aside the penalty.
4. Rajiv Maheshwari v. SEBI⁸ (May 18, 2023)
   The appellant was accused of placing the first order of the day of a miniscule quantity at a higher rate than the last traded price (LTP), allegedly contributing to price manipulation. SAT set aside the penalty imposed by SEBI, holding that the appellant placed "limit orders" at prices permitted by law, specifically up to 5% above the LTP. The appellant's trades contributed to an increase in the price of the scrip but without any intention to manipulate the price upwards. There was no meeting of minds or connection of the appellant with the other noticees who had actually manipulated the price and contributed to artificial market volume through synchronized, circular and reversal trades. As such, while certain other market participants were held guilty of manipulative trading, the appellant in the instant case was absolved of all blame.
5. Bharat Natwarlal Patel v. SEBI⁹ (October 10, 2023)
   SEBI had alleged that the appellant engaged in manipulative, circular, and synchronized trading by placing a single sell order followed by multiple buy orders at slightly higher prices. However, SAT noted that the appellant was not connected to other noticees, and the trades occurred on a single day. SAT held that one impugned trade executed by the appellant could not lead to a conclusion of misleading appearance of trading in the scrip in question nor could it lead to the conclusion that the appellant was carrying out circular or synchronized trades since connection with other entities was not found. SAT emphasized that circular and synchronized trades could only happen if there was a connection with other entities involved in the trades and there was a meeting of minds. In the absence of any connection, the involvement of the appellant through trading pattern could not reasonably be the sole basis.
6. Rajani Dusad and Another v. SEBI¹⁰ (November 24, 2023)
   The appellants were penalized for alleged price manipulation in the trading of a company's scrip during the year 2016–17. One appellant was accused of placing buy orders above the last traded price (LTP), while the other, being a sub-broker and spouse, was alleged to have facilitated the manipulation. SAT held that although some trades marginally impacted LTP (0.24%), there was no evidence of collusion with counterparties, which is essential to prove manipulation. Merely buying shares at higher prices from unknown sellers does not amount to manipulation, and spousal/sub-broker status alone could not establish facilitation.

B. Cases where SAT found manipulation

7. Menika v. SEBI and other connected appeals¹¹ (January 5, 2023)
   SEBI's investigation found 13 entities, including the appellants, engaged in synchronised and reversal trades. On appeal, SAT held that the appellants were connected through shared contact details and had executed substantial synchronised trades across both the National Stock Exchange and Bombay Stock Exchange, creating artificial volumes without any genuine change in ownership. While the appellants argued that their individual trades were minuscule compared to total market volume, SAT clarified that in cases of synchronised trading, the trades of all the entities involved in the reversal trades are to be considered which when considered in totality, lead to high volume of trading and high percentage compared to the total market volume.
8. Nilesh Kishanbhai Pandya v SEBI and other connected appeals¹² (December 18, 2023)
   SEBI found the appellants engaged in synchronized trades, placing matching buy and sell orders within a minute over 39 days, covering nearly 13% of market volume. SAT held that the appellants were connected to other noticees through trading links and common details. SAT held that individual trades could not be viewed in isolation and the cumulative percentage and volume of trades had to be considered, which was substantial and showed a clear intent to increase the last traded price and create a misleading appearance of trading without any genuine transfer of ownership. Accordingly, SAT upheld SEBI's penalty of ₹5 lakhs each.
9. Sangeeta Kailash Purohit v. SEBI¹³ (May 19, 2023)
   SEBI found that certain noticees executed trades in close proximity and in small quantities to artificially inflate trading volume and mislead investors. SAT upheld this and stated that the pattern of buy and sell orders, often within 1-4 minutes of each other, could not have occurred by accident or by coincidence and this led to an inference that there was a meeting of minds with a pre-determined plan and, therefore, there was collusion between the parties. This was, in particular, considering the fact that the matter centred around an illiquid scrip.As such, after analysing the circumstances and documents placed on record, SAT concluded that the impugned trades were not genuine and were done with a fraudulent intent to create artificial volume in the scrip. SAT further held that continuous trades placed between the appellants within a few minutes of each other at almost the same rate constituted structured trades, clearly executed with fraudulent intent.
10. Lata Bejgam v. SEBI and other connected appeals¹⁴ (June 15, 2023)
    SEBI found that certain appellants had engaged in structured trades, placing buy and sell orders in close temporal proximity to create artificial volume and manipulate the last traded price. SAT upheld the same and stated that the appellants had carried out structured trades wherein the buy order and sell orders were placed within a time gap of one minute which was akin to synchronized trades, and had successfully increased the last traded price (LTP) thereby creating a misleading appearance of trading in the scrip without any intention of change in the beneficial ownership. SAT was of the opinion that the appellants had acted in concert by regularly placing their trades in sync with each other with no intention of holding the shares. SAT concluded that these appellants had carried out reversal trades, executing trades with the same counterparties on the same day, reinforcing the finding of manipulative intent.

Conclusion

The jurisprudence on synchronized and circular trades demonstrates that Indian courts and tribunals have rejected a blanket presumption of illegality. Instead, they consistently emphasize the need to establish collusion, intent, and a meeting of minds before holding trades to be manipulative. While practices such as circular trading and clear reversal trades tend to signal fraud in the eyes of the regulator, synchronized transactions fall into a grey area and are scrutinized based on context, market impact, and proof of coordination. SAT's recent decisions show a balanced approach where penalties are upheld where trading patterns unmistakably reveal collusion and artificiality, SEBI's orders are quashed where similarity in pricing of trades or timing alone is relied upon without any indication of manipulation. This evolution underscores that market manipulation cases must be judged not by form but by substance, protecting investor confidence without penalizing bona fide trades.

Footnotes

1. Ketan Parekh v. SEBI, 2006 SCC OnLine SAT 221

2. SEBI v. Kishore R Ajmera, (2016) 6 SCC 368

3. SEBI v. Rakhi Trading Private Limited, (2018) 13 SCC 753

4. Nirmal Bang Securities Pvt. Ltd. v. SEBI, 2003 SCC OnLine SAT 37

5. AKG Securities and Consultancy Ltd. v. SEBI, 2025 SCC OnLine SAT 399

6. Jio Financial Services Ltd. v. SEBI, 2023 SCC OnLine SAT 1048

7. Manjulaben Bhaveshkumar Rangee v. SEBI, 2023 SCC OnLine SAT 1835

8. Rajiv Maheshwari v. SEBI, 2023 SCC OnLine SAT 1143

9. Bharat Natwarlal Patel v. SEBI, 2023 SCC OnLine SAT 875

10. Rajani Dusad and Another v. SEBI, 2023 SCC OnLine SAT 1842

11. Menika v. SEBI, 2023 SCC OnLine SAT 1256

12. Nilesh Kishanbhai Pandya v. SEBI, MANU/SB/5631/2023. At the time of publication of this article, the authors have been unable to find a SCC copy of the order.

13. Sangeeta Kailash Purohit v. SEBI, 2023 SCC OnLine SAT 200

14. Lata Bejgam v. SEBI, 2023 SCC OnLine SAT 246

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.