Jane Street To Fight India Ban Over ‘Index Arbitrage’ Allegations
India-West News Desk
BENGALURU — U.S.-based high-frequency trading firm Jane Street has vowed to challenge a sweeping ban imposed by India’s top financial watchdog, which has accused the firm of manipulating the country’s booming derivatives market.
In a message to employees, Jane Street described the Securities and Exchange Board of India’s (SEBI) allegations as “extremely inflammatory,” insisting that the firm was engaged in “basic index arbitrage trading,” a standard and accepted practice in global financial markets. The firm is currently preparing a formal response, according to Reuters.
On July 4, SEBI barred Jane Street from participating in Indian securities markets and froze $567 million of its funds. The regulator accused the firm of artificially propping up the Bank Nifty index during morning trading by purchasing large volumes of its components in both cash and futures markets. At the same time, Reuters reported, Jane Street allegedly built substantial short positions in index options, which it then allowed to expire or exercised later in the day for profit.
SEBI said it had been monitoring Jane Street’s trading behavior for over two years and has since expanded its investigation to examine similar activities across other indexes and exchanges, according to a source familiar with the probe.
In its internal communication, Jane Street defended its approach, saying arbitrage trading “is a core and commonplace mechanism of financial markets that keeps the prices of related instruments in line.”
Despite the regulatory setback, the firm has not yet hired legal representation but has approached several Indian law firms in preparation for what could become a prolonged legal battle, according to four individuals with direct knowledge of the situation.
India’s equity derivatives market has surged in recent years, driven largely by retail investor participation. In May, Reuters said, the country accounted for nearly 60% of global equity derivatives trading volume, according to the Futures Industry Association. However, the meteoric growth has also raised red flags, with many individual investors suffering heavy losses — prompting tighter scrutiny from SEBI.
SEBI Chairman Tuhin Kanta Pandey acknowledged the regulator’s heightened surveillance efforts during a public statement on July 7, saying the agency is focused on uncovering manipulation in the derivatives space. However, he suggested that cases of this nature may remain relatively rare.
Jane Street, known for its global presence and algorithmic trading expertise, now faces one of its most serious regulatory challenges in a key emerging market.
