India bars US trading firm Jane Street from accessing its securities market
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The Securities and Exchange Board of India has been investigating Jane Street’s derivatives trades over alleged manipulation.
PHOTO: REUTERS
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MUMBAI – India’s regulator has restrained Jane Street Group from accessing the local securities market, dealing a severe hit to the US trading company that generated more than US$2.3 billion (S$2.9 billion) in net revenue from equity derivatives in the South Asian nation in 2024.
The Securities and Exchange Board of India (Sebi) said it would seize 48.4 billion rupees (S$721 million) from Jane Street, which it claimed is the total amount of unlawful gains made by the fund, according to the order.
Sebi said Jane Street Group entities “are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly”.
Banks have been directed to ensure no debits are made without Sebi’s permission in respect of the accounts held individually or jointly by the entities, according to the order.
Ms Charu Chanana, chief investment strategist at Saxo Markets in Singapore, said: “This may signal Sebi’s growing vigilance and willingness to assert control over foreign institutional activity making hefty gains in its derivatives market – particularly where such strategies blur the line between smart trading and market distortion.”
Sebi has been investigating Jane Street’s derivatives trades after some market participants alleged manipulation by the US company.
India, the world’s largest derivatives market by contracts traded, has seen global high-frequency trading and market-making companies ranging from billionaire Ken Griffin’s Citadel Securities to Optiver expand in recent years.
Jane Street, in an e-mailed response, said it disputes the findings of the Sebi interim order and will further engage with the regulator.
“Jane Street is committed to operating in compliance with all regulations in the regions we operate around the world,” the company said.
The regulator’s action is a blow for Jane Street, which started its India operations in December 2020.
The company can file its reply or any objections to the order within 21 days, Sebi said. It can also challenge the order judicially via the Securities Appellate Tribunal.
In its 105-page order, Sebi alleged that Jane Street and its India-incorporated entities took large derivative positions to manipulate the Bank Nifty index, a grouping of 12 financial sector companies and a favourite in the derivative markets.
The investigation tracked Jane Street’s trading patterns over more than two years and found two key strategies that were designed to manipulate stock indexes, the regulator said.
It added that Jane Street and its related entities bought large quantities of constituents in the Bank Nifty index in the cash and futures markets to artificially support the index in morning trade, while simultaneously building large short positions in index options.
Later in the day, they reversed these trades to profit from their options positions, Sebi said.
“By moving the Bank Nifty index with large and aggressive buying followed then by large and aggressive selling, JS Group was creating a false or misleading appearance of market activity,” it said.
“In the bargain, it was enticing unsuspecting entities trading in Bank Nifty index options to trade at interim levels that were artificial and temporary.”
The regulator said Jane Street’s trades revealed a pattern of “highly concentrated activity” in the final hour before market close on expiry days to influence the index settlement price in favour of their large options positions.
Sebi said the trading practices employed by Jane Street represent manipulation under its regulations.
The trading patterns amounted to “egregious manipulation of the prices of securities and benchmark indexes for their own illegal gains, to the detriment of several lakhs (hundreds of thousands) of small market participants”, it said.
Sebi also said that by incorporating entities in India, Jane Street managed to “work around” Indian regulations that prohibit foreign portfolio investors from undertaking intraday positions in the cash market. BLOOMBERG, REUTERS
