Jane Street to challenge India market ban, rejects manipulation claims

US-based high-frequency trading giant Jane Street has vowed to challenge a trading ban imposed by India’s market regulator, rejecting accusations of manipulation and insisting its activity amounted to legitimate index arbitrage.

SEBI accuses Jane Street of market manipulation

India’s Securities and Exchange Board (SEBI) on Friday barred Jane Street from buying and selling securities in Indian markets and ordered the seizure of $567 million of its funds. As per Reuters, the regulator alleges that Jane Street artificially propped up India’s Bank Nifty index during morning trading by buying large quantities of index constituents in both the cash and futures markets, while simultaneously building large short positions in index options. SEBI claims the firm allowed these options to expire or exercised them later in the day for profit.

The watchdog has been tracking Jane Street’s trading patterns for more than two years and has widened its investigation to other indices and exchanges, according to Reuters sources.

Jane Street rejects ‘inflammatory’ claims

In an internal email seen by Reuters, Jane Street told employees over the weekend that it was “beyond disappointed” by SEBI’s “extremely inflammatory” accusations and was preparing a formal response. The email characterised the contested activity as “basic index arbitrage trading,” describing arbitrage as “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 said in its message to staff, as per Reuters.

Firm denies failing to cooperate with regulators

Jane Street also rejected SEBI’s assertion that it had not adequately addressed regulatory concerns. The firm said its executives had met 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,” the email said, as per Reuters.

According to Jane Street, it had continued efforts to communicate with SEBI since February but had been “consistently rebuffed.”

Explosive growth in India’s derivatives market

The dispute underscores mounting regulatory scrutiny of India’s booming derivatives market, which has seen an influx of retail investors. According to the Futures Industry Association, India accounted for roughly 60 per cent of global equity derivative trading volume in May, making it the largest such market in the world.

But rapid growth has also brought risks. Data released on Monday showed retail investors in India suffered widening losses in equity derivatives, with losses growing 41 per cent to 1.06 trillion rupees ($12.4 billion) in the financial year that ended in March.

SEBI ramps up surveillance as other firms watch

SEBI Chairman Tuhin Kanta Pandey said on Monday the regulator was enhancing surveillance to identify manipulation in derivatives trading, while adding there may not be many more cases similar to Jane Street’s. Other global proprietary trading firms active in India include Citadel Securities, IMC Trading, Millennium and Optiver, according to Reuters.

SEBI did not respond to Reuters’ requests for comment on the details of the investigation or Jane Street’s accusations of poor communication. As the standoff escalates, Jane Street’s case is shaping up as a key test of India’s approach to policing sophisticated trading strategies in a rapidly expanding market and of how global firms adapt to tightening oversight.