Jane Street to contest allegations of market manipulation by Indian regulator, according to sources

Jane Street is gearing up to challenge the recent ban imposed by India’s financial regulatory body after being accused of market manipulation. The U.S.-based high-frequency trading giant has affirmed that the practices in question were simply “basic index arbitrage trading.”

Expressing deep disappointment over the allegations made by the Securities and Exchange Board of India (SEBI), Jane Street has indicated that it is working on drafting a formal response to contest the ban. An internal email sent to employees over the weekend revealed the firm’s stance on the matter.

SEBI’s decision to bar Jane Street from engaging in securities trading activities in the Indian market and seizing $567 million of its funds has sparked controversy. The regulatory body stated that Jane Street had engaged in the artificial manipulation of India’s Bank Nifty index by purchasing large quantities of constituents in the cash and futures markets to prop up the index during morning trading. Simultaneously, they allegedly built substantial short positions in index options that were utilized later in the day.

Having monitored Jane Street’s trading activities over a span of more than two years, SEBI has expanded its investigation to include other indexes and exchanges. In recent years, India’s derivatives market has experienced exponential growth, attracting a surge of retail investors. While this growth has led to the market becoming the largest in the world, it has also resulted in significant losses for many ordinary investors, raising concerns among regulators.

Jane Street emphasized that arbitrage trades are a fundamental component of financial markets, serving to maintain the equilibrium of related instruments’ prices. The firm challenged SEBI’s assertion that such activities were manipulative, highlighting the critical role of liquidity providers and arbitrageurs in market dynamics.

SEBI’s claim that Jane Street had inadequately addressed regulatory concerns was refuted by the trading firm. According to Jane Street, its executives had engaged in multiple meetings with regulators and exchange officials to address any issues raised. The firm expressed frustration over what they perceived as unsuccessful attempts to communicate effectively with SEBI.

India’s equity derivative trading volume accounted for approximately 60% of the global market in May, as per data from the Futures Industry Association. Recent figures indicated a 41% increase in equity derivative losses for retail traders in India, reaching 1.06 trillion Indian rupees ($12.4 billion) in the previous financial year.

SEBI Chairman Tuhin Kanta Pandey affirmed the regulator’s commitment to enhancing surveillance measures to detect and prevent manipulation in derivatives trading. Despite the scrutiny, it was noted that there may not be many cases similar to Jane Street’s. Several other overseas proprietary trading firms, including Citadel Securities, IMC Trading, Millennium, and Optiver, are actively operating in the Indian market.