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News18
16 hours ago
- Business
- News18
After Rs 36,500 Cr Jane Street Scam Saga, Can SEBI Plug The Gaps In Derivatives Market?
Jane Street, a US-based algo trading company, was alleged by the Securities Exchange Board of India (SEBI) in its 115-page report for market manipulation and misleading investors. The company was alleged to make profits in billions through unethical strategies. SEBI has now barred Jane Street from accessing the Indian stock market and ordered to pay Rs 4,840 crore in alleged unlawful gains. Gaurav Goel, Founder and Director at Fynocrat Technologies told The Economic Times that the damage isn't just financial – it erodes faith in the system. 'This kind of manipulation, if proven true, not only distorts the market but also harms retail investors who trade with trust and limited capital," he added. Goel told ET that several regulatory gaps need to be filled in. He said 'manipulators often trade in both stock and options markets to create fake price moves. Sebi should build systems that track both markets together and raise alerts when something looks suspicious." Dinesh Thakkar, Managing Director, Chairman and the Founder of Angel One while sharing his PoV on the future of India's proprietary trading, said India's market opportunity is ????????????????????????????????????????, ???????????? ???????????????????????????????? ???????????? ???????????????????????????????????? ???????????? ???????????????????????????????????? ???????? ???????????? ???????????? ????????????????. He said that India's macroeconomic foundation remains solid. ???????????????????????????????????? ????????????????????????????????????, ???????????????????????????????????????? ????????????????????????????????????????????????, ???????????????????????? ???????????????????????????????? ????????????????????????????????????????????, ???????????????????????? ???????????????????????????????? ???????????????????????????? ???????????????????? ???????????? ???????????? ???????????????????????????????????? continue to support high liquidity and sustained market participation Siddhart Bhamre, head of institutional research at Asit C Mehta said Jane Street is one of the largest traders contributing to India markets. He added that when big players are banned for wrongdoing, others become cautious and reduce activity, leading to lower volumes. The impact may extend beyond SEBI's jurisdiction, with tax authorities expected to examine Jane Street's structure under India's General Anti-Avoidance Rules (GAAR). A large chunk of profits was reportedly routed through its Singapore-based FPI arm, leveraging treaty-based tax benefits, while Indian entities allegedly carried out intraday trades—something FPIs are not allowed to do. 'Considering the observations in the interim order, GAAR could potentially be applied to shift profits to entities liable to pay tax in India," said Harshal Bhuta, partner at PR Bhuta & Co, in a statement to The Economic Times. Jane Street Fraud Saga: Full Explained The regulatory action comes after an extensive investigation into alleged manipulation of the Indian stock market through index derivatives, particularly Bank Nifty options, which earned the company massive profits of over Rs 36,500 crore between January 2023 and March 2025. Advertisement In India, it operated through four firms — JSI Investments Pvt Ltd, JSI2 Investments Pvt Ltd, Jane Street Singapore Pte Ltd, and Jane Street Asia Trading Ltd. How Did Jane Street Earn Rs 36,500 Crore By Allegedly Tricking Indian Stock Markets? Between January 2023 and March 2025, Jane Street entities made over Rs 43,289 crore in profits from index options, particularly Bank Nifty (BANKNIFTY) using various strategies that allegedly manipulated markets. These profits were partly offset by losses in other segments like stock futures and cash equity, resulting in a net gain of Rs 36,502 crore. In a 105-page order, Sebi highlighted two key manipulative strategies — 'Intraday Index Manipulation Strategy' and 'Extended Marking the Close Strategy'. Read Those Market Manipulation Strategies : Explained: What Is Jane Street, How It Earned Rs 36,500 Cr From F&O Trades In India, Why Has Sebi Banned It? Sebi noted the following: A staggering Rs 17,319 crore was earned from BANKNIFTY options alone. advetisement Profits were disproportionately high on expiry days, when options contracts expire and price influence can be most potent. Trades were concentrated in short bursts, often aligned with expiry timings. 'JS Group made a total profit of Rs 36,502.12 crores across all segments," Sebi said in the order. SEBI has accused Jane Street of: Violating the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations Misleading market participants, especially retail traders who rely on index movements
Time of India
2 days ago
- Business
- Time of India
Jane Street leaves multiple fingerprints for I-T; artful dodger may now run into a GAAR net
In pulling off stunning profits in a short spell, Jane Street has challenged several principles and left multiple fingerprints for the income tax (I-T) authorities in India. An artful use of its arms in different jurisdictions to carry out diverse trades and escape tax will, in all likelihood, come under the scrutiny of the I-T department. In the taxman's parlance, the Jane group's elaborate mechanism for alleged market manipulation would go down, besides other violations, as "impermissible avoidance arrangement". This, according to the General Anti-Avoidance Rule (GAAR) in the I-T Act, is an arrangement that is put in place to simply dodge tax or is executed in a manner "which are not ordinarily employed for bona fide purposes". Jane used its outfits in India to take positions in cash and stock futures markets while its Singapore and Hong Kong entities, which are Sebi-registered foreign portfolio investors (FPIs), took large positions in equity options, a large liquid market that has grown dramatically in the past few years. The bulk of the profit was booked in the Singapore FPI which paid no tax on the earnings from equity derivatives (futures and options trades) by virtue of the India-Singapore tax treaty, which is very similar to the one India has with Mauritius. The Indian entities (JSI Investments and JSI2 Investments) took intra-day positions - buying in the morning and selling before the market closing - to influence prices, while the two FPIs (often taking opposite positions) made a killing. The profits of the two offshore FPIs - Jane Street Singapore and Jane Street Asia Trading, Hong Kong - far exceeded the possible losses of the two onshore entities. You Might Also Like: How Sebi's crackdown on Jane Street unfolded: A 15-month trail of scrutiny and ignored warnings Thus the entities, which recorded either a loss or smaller profits - and therefore paid little or no tax - were incorporated in India which imposes full income tax (varying from 30% to over 40%) on profits from equity derivative trades. But the Singapore FPI, which is the key piece in the entire arrangement and made the most money, paid no tax on options profits as it was housed in a tax-exempt country. Even though there is no similar tax benefit available for the Hong Kong FPI, the vehicle may have been used when the Singapore FPI had used up its margins and internal exposure limits for the group. MIRROR TRADES? Now, the Indian entities had to be used for two reasons: first, FPIs cannot take intra-day cash positions; second, an FPI (or two FPIs belonging to the same group) taking contra positions would have immediately raised red flags for Sebi. Under the circumstances, the I-T department may have enough grounds to question Jane Street, said tax circles and senior practitioners. "Since Indian entities were used to execute trades to bypass the restrictions on FPIs on intra-day cash equity trades, it may trigger a GAAR scrutiny if the I-T sees it as an artificial arrangement to sidestep FPI rules. Also, should the profits be taxed as capital gains or business income or unexplained income which still attracts a penal rate? The question crops up on the back of Sebi's allegations that profits rose from manipulative trades and not genuine market activity," said Girish Vanvari, founder of Transaction Square, a regulatory and business advisory firm. You Might Also Like: Make $1 billion loss in stock futures to earn $5 billion profit in options: Sebi exposes Jane Street's Baazigar strategy Sharing the view, Harshal Bhuta, partner at the CA firm PR Bhuta & Co, said, "Given the interim order's observation regarding the admission by Jane Street Group that all its entities operating in Indian markets act collectively, if it is suspected that the trades have been carried out in a manner that results in skewed profitability in entities which enjoy treaty benefits, GAAR could be invoked to reallocate profits to entities subject to Indian tax. Furthermore, the principal purpose test under the India-Singapore DTAA could also be invoked to deny the treaty exemption on gains arising from trades in 'index options'." As per the Sebi order, the Jane Group had allegedly run a system of coordinated trade across onshore and offshore entities that was managed centrally. If these allegations are substantiated, the Indian subsidiaries may be seen as "functional dependent agents". "This then could result in income attribution to India and higher tax exposure for offshore arms," said Vanvari. What could instantly appeal to the taxman is the provision of GAAR. This comes in handy when tax officials choose to deny treaty benefits when they suspect that a vehicle lacks 'commercial substance' - a shell entity that is floated to simply route trades and claim tax benefit. But, there is no evidence that the Jane Singapore vehicle lacked substance or was just a paper company. However, the way it had cut the deals - which, as per the Sebi order, appear as mirror trades with allegedly close links between the different arms - could well raise many eyebrows in the tax office. You Might Also Like: Explained: What is Jane Street and how it made Rs 36,500 crore profit by gaming Dalal Street
