According to media reports, India’s tax authorities and market regulator are considering expanding their investigation into the US-based Jane Street Group, which has previously been accused of price rigging in the Bombay Stock Exchange’s benchmark Sensex.
The Securities and Exchange Board of India (SEBI), a market regulator, recently seized 48.43 billion rupees ($570 million) and prohibited four Jane Street-related companies from trading on the market for alleged price manipulation in the National Stock Exchange (NSE).
In the world’s largest option trading market, SEBI’s order has sparked controversy in Indian markets and raised concerns about investor protection and regulator surveillance. Due to the ban on Jane Street, trading in India’s weekly equity index options decreased by a third, according to a report released on Thursday by Reuters.
Equity option trading enables investors to purchase or sell shares at a predetermined price and date. Retail investors jumped onto the Indian market as the market quickly expanded to handle more than half of all global options trades.
This rapid rise was hampered by price manipulation until a New York court case in April 2024, in which Jane Street claimed Millennium Partners had allegedly stolen its algorithms, which enabled it to gain entry to the Indian options market. Mayank Bansal, a whistleblower, then presented data to SEBI demonstrating the trading patterns of Jane Street. Bansal had agreed to talk to Al Jazeera about how he had argued the matter with SEBI, but he later changed his mind.
The regulator stated on July 3 in a thorough interim order that “by preponderance of probability, there is no economic rationale that can account for this sudden burst of large and aggressive activity… other than the intention to manipulate the price of securities and index benchmark.”
SEBI claims that at the start of trade, Jane Street built large short positions in index options and accumulated large long positions in stocks that are a part of the NSE’s Bank Index. It would reverse its trades in the cash and futures segments to bring down the index and make significant profits in the options segment at market closing time.
Some of the offshore companies that engaged in these trades blurred this pattern.
According to Joby Mathew, managing partner at , the , law firm Joby Mathew and Associates , and a former SEBI legal officer, “Lawyers can] push back with SEBI on jurisdiction-related issues, but SEBI can take action when underlying [Indian] securities are issued,”
Jane Street has retained legal counsel to defend the case against SEBI’s findings. The investigation and final report are pending, so it has deposited the 48.43 billion rupees ($563 million) of allegedly illicit gains in an account.
Sumit Agarwal, a former SEBI officer and cofounder of Regstreet Law Advisors, stated in an emailed response that “such processes typically take eight to 24 months,” especially in “complex manipulation cases.”
The investigation cannot, however, be a part of a more comprehensive examination of Jane Street and the regulator’s responsibility to identify and stop such transactions as quickly as possible and safeguard retail investors.
Highly volatile and speculative
Retail investors were drawn to India’s options market as it expanded because of the prospect of quick gains and less fettered trades compared to the equities market, where a rapidly rising stock could hit circuit breakers, causing a stop in trading to stop manipulation.
According to Mathew, his clients in the options trading industry range from students to renowned cardiologists who may not be well-versed in the market but were persuaded by traders or social media influencers. The majority of the time, they lost money.
Retail investors account for nearly half of the Indian options market, according to Deven Choksey, managing director of Mumbai-based KR Choksey Shares and Securities, while Jane Street and other well-known companies account for only a small portion. It’s like facing a race car in a bullock cart. Their interaction is certain to result in accidents.
If it was discovered that Jane Street had manipulated the market, retail investors would have lost money from the transaction.
Retail investors have lost money in the option segment, according to Bhargavi Zaveri, a researcher who previously worked for the National Institute of Public Finance and Policy and is currently working as a doctoral researcher at the National University of Singapore.
In these circumstances, it can be challenging to find and compensate investors. Therefore, it might be difficult to distribute the money to retail investors who lost money even if the final order goes against Jane Street and the 48.43 billion rupees fine is put into an investor protection fund. According to experts, the best defense might be to stop illicit trades early.
SEBI claims to have a surveillance system and is able to effectively monitor the markets. Choksey affirms.
According to SEBI’s estimates, the interim order is based on trades made by Jane Street between January 1, 2023 and March 31, 2025.
According to Regstreet’s Agarwal, “SEBI’s own 2024 consultations flagged expiration day options as highly speculative and volatile.”
Option expiration dates are set for India every fortnightly, which is when they must be settled. When allegedly Jane Street manipulated prices?
According to SEBI, “The above trading activity appears to be fraudulent and manipulative in a February 6 letter.” However, it didn’t finish up its July 3 order to curb Jane Street.
According to Agarwal, SEBI’s recent policies that restrict weekly expirations, tightening spreads, and higher margins “reflect a push for greater protection” for retail investors.
However, Choksey points out that the best way to safeguard retail investors would be to have them trade independently from proprietary trading companies in the options industry.
Nowhere in the world will you find so many retail investors, as Gandhi once said. Therefore, SEBI  must create product differentiation by customer segment. Chiksey claims to protect retail investors.
proving manipulation: difficulties
Jane Street allegedly told employees it was “basic index arbitrage trading” in an internal email, and described SEBI’s claims as “extremely inflammatory.” It retained Khaitan and Co, a law firm based in Mumbai, to represent it before SEBI.
Experts are divided on whether a SEBI investigation will be able to demonstrate that price manipulation involves demonstrating intent, which can be challenging. According to Mathew, a former attorney, “trading to incur losses makes no sense, and so it indicates manipulation.”
Zaveri for NUS claims that the clarity is not that great. “I believe there are three issues being merged here.” One, the underlying cash segment’s size being greater than the options segment’s. Two, that retail investors have lost money in the options market, which I’m not sure has been accurately stated. Three, Jane Street “argued between the highly liquid options segment and the illiquid cash segment.”
The three incidents, in her opinion, may not demonstrate the manipulator’s intentions.
A manipulation finding is challenging without clear intent evidence, according to Regstreet’s Agarwal, and “Jane Street can argue its expiry day trades were legitimate index arbitrage recognized by regulators,” according to Regstreet’s Agarwal.
Jane Street’s reputation may be impacted by SEBI’s actions. According to a Bloomberg investigation last month, Robert Granieri, a cofounder of Jane Street, was duped into giving money to a coup attempt in South Sudan.
Source: Aljazeera
Leave a Reply