Jane Street to challenge India ban, says it engaged in basic arbitrage

Zawya

21 hours ago

BENGALURU: Jane Street has told staff it will contest a ban by India's financial regulator which has accused the U.S. high-frequency trading giant of market manipulation, adding that its practices in question were "basic index arbitrage trading".
Jane Street said it was "beyond disappointed" by what it called "extremely inflammatory" accusations from the Securities and Exchange Board of India (SEBI) and is working on a formal response, according to an internal email sent to employees over the weekend that was seen by Reuters.
The email did not elaborate on the potential action that Jane Street might take.
SEBI on Friday barred the firm from buying and selling securities in the Indian market and seized $567 million of its funds.
"The order clearly lays out SEBI's prima facie case and addresses all relevant areas and questions," SEBI said in an official comment to Reuters.
At this stage, we have nothing to add to what is already contained, explained, and reasoned in that order, SEBI added.
SEBI in its order had alleged that Jane Street bought large quantities of constituents in India's 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 which were exercised or allowed to expire later in the day.
The regulator, which tracked Jane Street's trading patterns for more than two years, has also widened its investigation to include other indexes and exchanges, a source has said.
Over the past three years, India's derivatives market has had explosive growth as retail investors swarmed in and is now the world's largest. But that has also led to losses for many ordinary investors, which has become a concern for regulators.
In its email, Jane Street said arbitrage trades were "a core and commonplace mechanism of financial markets that keeps the prices of related instruments in line."
SEBI's order that this activity is "prima facie manipulative" disregards the role of liquidity providers and arbitrageurs in markets, Jane Street added.
SEBI did not respond to Reuters' requests for comment.
The proprietary trading firm also took issue with SEBI's claims that it had failed to respond adequately to the regulator's concerns, saying the firm's executives had met with regulators and exchange officials multiple times.
"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."
"Since February, we have made ongoing efforts to communicate with SEBI and have been consistently rebuffed," the email said.
India accounted for roughly 60% of global equity derivative trading volume in May, according to the Futures Industry Association.
Data out on Monday showed that equity derivative losses for India's retail traders widened by 41% to 1.06 trillion Indian rupees ($12.4 billion) in the financial year that ended in March.
SEBI Chairman Tuhin Kanta Pandey also said on Monday that the regulator was enhancing its surveillance to scrutinise manipulation in derivatives trading, but added that there may not be many more cases like Jane Street.
Other overseas proprietary trading firms that are active in India include Citadel Securities, IMC Trading, Millennium and Optiver.