On Friday, SEBI barred Jane Street from trading in India and ordered it to return over 550 million dollars of what it describes as illegal profit. The ban follows allegations that Jane Street moved Indian bank stocks in ways that triggered large payouts on connected derivatives.
SEBI is enhancing its surveillance to scrutinize manipulation in derivatives trading, its chairman said on Monday.
The SEBI has alleged that Jane Street bought large quantities of constituents in 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.
Jane Street rejects allegations
Jane Street has told staff it will fight the ban. In a memo sent on Sunday to around 3,000 employees, senior management wrote they were “beyond disappointed” by SEBI’s “extremely inflammatory” accusations.
“It’s deeply upsetting to see the firm mischaracterised this way,” said the memo, quoted by the Financial Times. “We take pride in the role we serve in markets around the world, and it’s painful to have our firm’s reputation tarnished by a report based on so many erroneous or unsupported assertions.”
Jane Street vs SEBI
Jane Street’s trouble with SEBI links back to a lawsuit it filed last year against Millennium Management and two former traders who left for the hedge fund. In that case, Jane Street claimed the traders stole a valuable strategy that turned out to centre on Indian options. SEBI’s probe zoomed in on Jane Street’s trades linked to the BANKNIFTY index, which tracks India’s major banking stocks.Regulators are now checking other parts of India’s markets too. Jane Street has argued that the trades flagged by SEBI were nothing more than “basic arbitrage trading”, a normal practice in the business.
Pushback on exchange claims
SEBI’s order also says Jane Street ignored warnings from local stock exchanges. The firm disputes this point strongly. In the same memo to staff, Jane Street said the regulator used “a metric for market impact and trading aggressiveness which seems disconnected from actual market dynamics”.
The memo added that when exchanges first raised concerns, the firm “immediately turned off its trading until we could better understand the exchanges’ concerns” and later changed its approach to meet their “preferences”.
“Once again, we left this process feeling that we had reached an understanding of the concerns and reflected them in modifications to our trading behaviour,” the memo said. “Since February, we have made ongoing efforts to communicate with SEBI and have been consistently rebuffed.”
Jane Street has 21 days to object to SEBI’s order and ask for a hearing. The firm says it is working on a detailed response and plans to fight the ban in full.
In the meantime, India’s regulators say they may widen the investigation into other trades and instruments connected to the firm. Jane Street’s future in one of Asia’s biggest markets now hangs on how this fight plays out.
