Sebi to intensify watch on derivatives trading after Jane Street episode

India Today

a day ago

The Securities and Exchange Board of India (Sebi) has decided to step up its monitoring of derivatives trading after its recent action against global trading firm Jane Street, reported news agency Reuters.The move comes as part of efforts to tighten oversight and prevent manipulation in one of the fastest-growing areas of India's financial markets.Speaking on Monday, Sebi Chairman Tuhin Kanta Pandey said the regulator is increasing its surveillance in the derivatives space. While he did not go into specific details, he hinted that cases like the one involving Jane Street may not be widespread. 'There may not be many more such cases,' he said as quoted by Reuters. INDIA'S DERIVATIVES MARKET UNDER THE LENSIndia is currently the world's largest equity derivatives market. According to the Futures Industry Association, it accounted for nearly 60% of the 7.3 billion equity derivatives contracts traded globally in April. This explosive growth has been fuelled not only by institutional activity but also a sharp rise in participation from retail investors.The rising interest in derivatives trading has already prompted Sebi to introduce a series of checks. The regulator has reduced the number of expiry dates available for certain contracts and increased lot sizes. These measures are aimed at making derivatives trading more expensive and reducing speculative activity.However, the recent incident involving Jane Street has raised concerns that even with these curbs, there may still be gaps in the system that allow large players to influence market prices unfairly.THE JANE STREET CASEOn Friday, Sebi barred Jane Street from buying or selling securities in Indian markets. The action followed a detailed investigation into alleged manipulation of stock indexes. Sebi also ordered the seizure of Rs 4,840 crore (approximately $567 million), which it said represented illegal gains from these activities.In its 105-page order, Sebi accused Jane Street of manipulating the Bank Nifty index. According to the regulator, the firm bought large quantities of Bank Nifty stocks in both the cash and futures markets in the morning, pushing the index higher artificially. At the same time, it had built significant short positions in index options. Later in the day, the firm reversed its trades in the cash market, leading to a drop in the index and profits from the earlier short positions.This strategy, according to Sebi, was a clear example of index manipulation aimed at benefiting from planned price movements in options trading.BROADER INVESTIGATION PLANNEDA person familiar with the matter told Reuters that Sebi plans to widen its probe into Jane Street's trading activity. The investigation will now look at trades across different exchanges and possibly other indices beyond the Bank Nifty.The regulator's decision to expand its inquiry signals that Sebi is taking the issue seriously and may not stop at Jane Street. With India's derivatives market growing rapidly, maintaining fair practices is becoming increasingly important to protect retail investors and maintain market stability.As a result, traders can expect more frequent audits, stricter monitoring of large trades, and possibly new rules to ensure that the derivatives market does not become a playground for manipulation.While Sebi has not named any other firms under scrutiny, market experts believe the incident could lead to a review of broader trading practices in the equity derivatives segment- EndsMust Watch
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