India markets regulator to widen probe into Jane Street, source says
The Securities and Exchange Board of India earlier on Friday barred Jane Street from buying and selling securities in the Indian market and also seized $567 million of its funds.
SEBI and Jane Street did not immediately respond to Reuters' requests for comment.
The regulator has 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.
Later in the day, Jane Street reversed the trades to profit from options positions, SEBI said in its 105-page order.
In response, Jane Street said it disputes the findings of the SEBI interim order and will further engage with the regulator. "Jane Street is committed to operating in compliance with all regulations in the regions we operate around the world," the firm said.
The company can file its reply or any objections to the order within 21 days, SEBI said. It can also challenge the order judicially via the Securities Appellate Tribunal.
The regulator expects to take time to complete the investigation, the source said, without providing more details on the regulator's plan to widen its investigation.
India is the world's largest derivatives market, accounting for nearly 60% of global equity derivative trading volumes of 7.3 billion trades in April, the Futures Industry Association says.
The burst of derivative trading activity, which includes a host of retail investors, has prompted the regulator to limit the number of contract expiries and increase the size of trading lots to make the derivatives more costly to trade.
But the source said that while retail participation in index options trading on expiry day has moderated, there appears to be still too much concentration in short-term expiries and short-term trading.
"Extending maturities and nudging more long-term trading, hedging, and investments would be ideal for our ecosystem," the person said, referring to India's capital markets.
(Reporting by Jayshree P. Upadhyay in Mumbai and Nandan Mandayan in Bengaluru, Editing by Louise Heavens and Jane Merriman)
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JS Group is part of this short-term, algorithmic trading aggressive dumping of Bank Nifty component stocks and futures in sharp reversal of the heavy pumping purchases done in the morning was immensely profitable for the large Bank Nifty option positions being run by the JS Group, and to the detriment of all those that had traded in the morning against JS Group at artificially boosted prices, Sebi said. This was a classic case of 'marking-the-close,' where an entity with huge options exposures that are expiring shortly, is moving the underlying market aggressively in its favour, Sebi Kamath, the founder of discount broker Zerodha, posted on X: 'You've got to hand it to Sebi for going after Jane Street. If the allegations are true, it's blatant market manipulation. The shocking part? They kept at it even after receiving warnings from the exchanges.'He also highlighted that such firms are key to the derivatives market.'Prop trading firms like Jane Street account for nearly 50% of options trading volumes. If they pull back— which seems likely —retail activity (~35%) could take a hit too. So this could be bad news for both exchanges and brokers,' Kamath posted.
