Chairman: India’s market regulator enhancing surveillance on derivatives manipulation

India’s securities market regulator is planning to increase its monitoring efforts to detect any manipulation in derivatives trading, according to the chairman. This move comes in the wake of the recent decision to ban U.S. firm Jane Street from participating in the Indian markets following an investigation that uncovered the firm’s involvement in manipulating stock indexes.

Chairman Tuhin Kanta Pandey indicated that while there may not be many similar cases, the regulator is taking proactive steps to ensure the integrity of the market. India is a significant player in the global derivatives market, responsible for approximately 60% of the 7.3 billion equity derivatives traded worldwide in April, as reported by the Futures Industry Association.

The surge in derivatives trading, largely fueled by retail investors, has prompted the Securities and Exchange Board of India (SEBI) to implement measures to deter manipulative practices. These include limiting the number of contract expiries and increasing lot sizes to make such trades more costly for those attempting to engage in fraudulent activities.

Following the recent actions taken against Jane Street, where the firm was prohibited from trading securities in India and had $567 million of its funds seized, SEBI revealed the details of the manipulation it uncovered. The investigation found that Jane Street had strategically purchased significant quantities of Bank Nifty constituents in the cash and futures markets to artificially boost the index in morning trading. Simultaneously, the firm built substantial short positions in index options. SEBI’s 105-page order outlined how Jane Street reversed these trades later in the day, allowing the firm to profit from its options positions.

Sources familiar with the matter disclosed that SEBI is planning to expand its investigation into Jane Street across various exchanges and other indexes to ensure that no stone is left unturned. The regulator’s commitment to upholding market integrity and safeguarding against manipulative practices underscores its dedication to maintaining a fair and transparent trading environment for all participants.

With these heightened surveillance efforts and ongoing investigations, SEBI aims to send a strong message that any attempts to manipulate derivatives trading in India will not be tolerated. This strategic approach aligns with the regulator’s mandate to protect investors and maintain the integrity of the market while fostering trust and confidence among stakeholders.