U.S.-based trading powerhouse Jane Street is preparing to challenge the Securities and Exchange Board of India (SEBI) after being banned from Indian markets and having $567 million in assets seized. The firm insists its actions constituted “basic index arbitrage” and not market manipulation.
What SEBI Alleges:
- Manipulation of Bank Nifty Index: Jane Street allegedly bought large volumes of index constituents to push up prices in morning trading, while simultaneously taking short options positions—profiting from the later decline.
- Artificial Market Activity: SEBI tracked this trading pattern over two years, calling it egregious manipulation that harmed retail investors.
- Widening Probe: The investigation is expanding to include other indices and exchanges.
Jane Street’s Defense:
- Claims the trades were legitimate arbitrage, a core liquidity mechanism used globally.
- Disputes SEBI’s “inflammatory” language and says it modified trading behaviour after regulator meetings.
- Says SEBI rebuffed ongoing communication efforts since February.
Legal Strategy:
- Jane Street is currently consulting Indian law firms and is expected to appeal to the Securities Appellate Tribunal (SAT).
- The firm is yet to officially respond beyond internal communications.
Market Context:
- India is now the world’s largest equity derivatives market, with 60% of global volume in May.
- Retail investor losses from derivatives surged 41% to ₹1.06 trillion ($12.4 billion) last fiscal year—prompting increased SEBI scrutiny.
- SEBI Chair Tuhin Kanta Pandey noted enhanced surveillance but doesn’t foresee many similar cases.
Broader Implications:
- Other global HFT and prop firms like Citadel, IMC Trading, Millennium, and Optiver are watching closely.
- The outcome may reshape how foreign players approach India’s fast-growing but tightly regulated derivatives market.
Takeaway:
Jane Street’s showdown with SEBI underscores the tension between aggressive arbitrage strategies and regulatory priorities to protect retail investors in India’s rapidly expanding markets.
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