SEBI Bars Jane Street from India's Securities Markets Amid Manipulation Allegations

The Securities and Exchange Board of India (SEBI) has issued an interim order barring U.S.-based trading firm Jane Street and its affiliated entities from participating in India's securities markets. The regulator has accused the firm of engaging in manipulative trading practices aimed at artificially influencing the Bank Nifty index to profit from options positions. As part of the order, SEBI has directed the impounding of approximately ₹4,844 crore (about $567 million) in alleged unlawful gains and imposed a trading ban on Jane Street until further notice.

SEBI's investigation revealed that Jane Street allegedly manipulated the Bank Nifty index by purchasing large quantities of its constituent stocks and futures to artificially inflate the index's value. Simultaneously, the firm took significant short positions in index options, profiting from the subsequent price movements. This strategy was reportedly executed on multiple occasions, particularly on expiry days, to influence the closing prices of the index.

For instance, on January 17, 2024, Jane Street allegedly bought Bank Nifty futures worth ₹4,370 crore and sold Bank Nifty options worth ₹32,115 crore in the morning session. Later in the day, it sold Bank Nifty futures worth ₹5,372 crore, resulting in a peak short position of ₹46,620 crore in the options segment. These trades led to a net gain of ₹673.4 crore on that day.

Jane Street has strongly denied SEBI's allegations, describing them as "extremely inflammatory" and based on inaccurate assertions. In an internal memo to its employees, the firm's senior management stated that their trading activities involved legitimate arbitrage strategies and that they had responded responsibly to concerns from Indian exchanges. Jane Street criticized SEBI for poor communication and plans to submit a formal objection within the 21-day response period provided by the regulator.

In response to the alleged manipulative practices, SEBI has intensified its surveillance to detect and prevent manipulation in derivatives trading. SEBI Chairman Tuhin Kanta Pandey emphasized that market manipulation will not be tolerated and that the regulator is committed to maintaining market integrity.

The ban on Jane Street has raised concerns about liquidity in the derivatives market, as the firm was a significant volume provider. Traders worry that the exit of such a major player could shrink market depth and increase volatility.

This case is notable for its scale and the nature of the alleged violations. Unlike previous incidents, which typically involved individual stocks, this case involves manipulation across multiple liquid stocks with high retail participation. SEBI's actions reflect a broader effort to strengthen oversight in India's derivatives market, which accounts for nearly 60% of global equity derivative volumes.

The outcome of Jane Street's formal objection and any subsequent legal proceedings will be closely watched by market participants and regulators worldwide, as it may set a precedent for how similar cases are handled in the future.