Latest news with #NehaJoshi
Mint
6 days ago
- Business
- Mint
What Sebi's proposed broker rule changes mean for algo trading and compliance
Next Story Neha Joshi From algos to qualified stock brokers, the draft cleans up three decades of circulars, hardwires investor safeguards and streamlines compliance. Public comments open till 3 September. Sebi has included definitions of 'algorithmic trading', which is order generated using automated execution logic and 'execution only platform (EOP)', a digital/online platform that facilitates subscription, redemption and switch transactions in direct plans of mutual fund schemes. Gift this article The Securities and Exchange Board of India (Sebi) has issued a consultation paper proposing a ground-up rewrite of the 1992 Stock Brokers Regulations to simplify compliance, codify key circulars, and align the rules with today's tech-driven markets. It has invited public comments until 3 September. The Securities and Exchange Board of India (Sebi) has issued a consultation paper proposing a ground-up rewrite of the 1992 Stock Brokers Regulations to simplify compliance, codify key circulars, and align the rules with today's tech-driven markets. It has invited public comments until 3 September. Mint breaks down what changes most for brokers, investors, and markets. What are the proposed definitions? Sebi has included definitions of 'algorithmic trading', which is order generated using automated execution logic and 'execution only platform (EOP)', a digital/online platform that facilitates subscription, redemption and switch transactions in direct plans of mutual fund schemes. Sebi also deleted the definition of a 'small investor' as the threshold of ₹ 50,000 was considered an outdated classification. Legal experts who advise brokers believe the proposed definitions may be too broad or missing out on spelling out exceptions. Sonam Chandwani, managing partner of KS Legal, said the proposed algorithmic trading definition is so broad that it risks capturing everything from basic order-routing tools to high frequency trading (HFT). 'This approach could subject low-risk participants to disproportionate compliance obligations designed for far more sophisticated and potentially disruptive trading systems." Chandwani said. Also Read | Sebi to reboot 30-year-old broker rules for a tech-first market How will registration and governance change? Sebi's consultation paper has specified that at least one designated director must be resident in India (182+ days per financial year) for broker-companies at registration consideration. It also specified that brokers must intimate Sebi (via an exchange) and other market infrastructure institutions (MIIs) of any 'material change" in registration information, not just change in control. Change-in-control approvals are to be routed through an exchange. Lawyers said the new 'material change" intimation will raise compliance overhead and may trigger disputes unless Sebi/exchanges clearly define scope, timelines, and formats through circulars. 'What is material change has not been defined in the proposed regulations. This additional requirement may increase the compliance burden on brokers, and the absence of a clear definition for 'material change' could lead to differing interpretations and potential disputes," said Akshaya Bhansali, managing partner at Mindspright Legal. What is changing for large brokers designated as QSBs? Sebi has proposed to rely on size/scale metrics only for Qualified Stock Brokers (QSB) designations. The metrics will now include active clients, client assets held with the broker, trading volumes, end-of-day client margin obligations, and proprietary trading volumes. Compliance and grievance scores, Sebi suggested, will not be qualifying criteria, as it puts additional burden of compliance on an aspect that is already monitored. Experts said this move is essential. 'While these requirements do increase compliance and operational costs, the large customer bases and high transaction volumes handled by QSBs make it essential for ensuring transparency and maintaining the credibility of market intermediaries," said Prakarsh Gagdani, chief executive officer (CEO) at Torus Digital. However, Narinder Wadhwa, managing director & CEO of SKI Capital Services Ltd, said the debate of compliance burden for QSBs being proportionate or overly stringent remained, potentially affecting competitiveness. How is recordkeeping and digitisation being streamlined? Sebi has proposed permitting electronic maintenance of books or records, essentially removing physical-security-era requirements, which includes paper contract note copies. Brokers must inform exchanges (not Sebi directly) where books/records are maintained, Sebi said, aligning submissions and communication through the exchanges. 'Changes in documentation, compliance technology, and reporting structures could require significant investment. There could be possible shifts in client onboarding norms, record-keeping formats, and real-time reporting obligations", Wadhwa said. How will fees and net worth requirements change? The consultation paper removes references to the outdated 1990s transition-year and has standardised fee payment processes and timelines through exchanges and online gateways. Exchanges collected these fees segment-wise. Sebi also proposed to remove the fixed base net worth and the formula-based variable net worth in the current regulations tied to client cash balances at brokers. The regulator reasoned that the provisions became less relevant after it introduced the mandatory upstreaming of client funds to clearing corporations. Through this, the investors' clear credit balances are transferred by the broker to the clearing corporation every day. Experts said the absence of clarity on how 'variable net worth" will be computed created uncertainty for capital planning. 'The shift of variable net worth to circulars means Sebi can change the formula quickly. Helpful if upstreaming lowers balances, but risky if they widen what counts. Large brokers can absorb swings; smaller ones may face sharper, less predictable capital demands", Ajay Kejriwal, executive director at Choice Equity Broking, said. What is the new power to relax strict enforcement? The regulator proposed an enabling provision to relax strict enforcement in specified circumstances such as undue hardship, procedural or technical issues, factors beyond control, and non-relevance for a class. It proposed including a mechanism for confidential treatment of requests or responses for up to 180 days. Legal experts said the discretion seemed inherently subjective. 'Without clearly defined parameters, market participants may challenge decisions as being arbitrary. Further, the provision allows for confidential treatment of such requests and Sebi's responses. So, such relaxations will not be in the public domain for up to 180 days (or not at all if withdrawn)", Bhansali said. Chandwani echoed the view and said that without precise criteria and published interpretive guidance, this flexibility could fuel interpretational uncertainty and litigation. Will inspections increase or be better coordinated? Beyond Sebi's inspection powers, recognised stock exchanges, clearing corporations, and depositories may conduct inspections as per their by-laws, the consultation paper said. Sebi and MIIs will be allowed to conduct joint inspections, aiming to avoid multiple duplicative checks. Lawyers said without a clearly defined jurisdictional hierarchy, regulated entities could be subjected to overlapping inquiries into the same issues. 'This not only creates procedural inefficiency but also heightens the risk of conflicting conclusions between authorities", Chandwani said. What timelines and operational impact should brokers expect? Industry sources note that adaptation windows for paperwork/policy updates could be a few months, with longer lead times for tech/algo controls and full QSB governance uplift; Sebi historically staggers implementation via circulars and master circular updates. 'Most brokers could adapt in six months for paperwork and policy updates, nine months for tech/algo compliance, nine months for full QSB governance upgrades, with likely phased timelines for any new net worth formula, giving smaller brokers extra breathing room", Kejriwal said. Topics You May Be Interested In Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Mint
14-07-2025
- Business
- Mint
Jane Street deposits ₹4,843.57 crore in escrow account but will contest Sebi order; options trading on hold for now
Next Story Neha Joshi , Ram Sahgal , Devina Sengupta , Nishant Kumar Jane Street Group will continue to contest the regulator's order but has put its options trading on hold for now. Sebi had barred four Jane Street entities from accessing the securities market and impounded ₹ 4,843 crore in alleged illegal gains on 3 July. (Image: Pixabay) Gift this article US-based proprietary trading firm Jane Street has deposited the amount demanded by the Securities and Exchange Board of India (Sebi) into an escrow account to resume trading, but according to a person familiar with the matter, it will continue to contest the regulator's order. Its options trading is on hold for now. US-based proprietary trading firm Jane Street has deposited the amount demanded by the Securities and Exchange Board of India (Sebi) into an escrow account to resume trading, but according to a person familiar with the matter, it will continue to contest the regulator's order. Its options trading is on hold for now. With the payment of ₹ 4,843.57 crore, Jane Street can recommence trading in the markets, per the Sebi's interim order of 3 July. Sebi's investigation of Jane Street's trading on other indices is ongoing. The interim order on 3 July pertained to 21 instances of trading—18 on Bank Nifty and three on Nifty weekly contracts—between August 2023 and May 2025. According to the person aware of the development, Sebi's probe will continue on other popular weekly indices such as Sensex, Finnifty, and Nifty Midcap Select. In an official statement, Sebi confirmed that Jane Street notified the regulator of the deposit, emphasising that the action was undertaken 'without prejudice to their rights and remedies which remain available to them in law and equity." The sum has been credited with a lien in Sebi's favour. Sebi also said Jane Street has requested the regulator to consider lifting certain conditional restrictions imposed under the interim order, following the creation of the escrow account. The regulator clarified that this request is currently under examination in accordance with the directions of the interim order. Sebi, in an interim order last week, accused Jane Street of manipulating the Bank Nifty and Nifty indices over a two-year period by taking disproportionately large positions in both cash and derivatives segments compared to other market participants. The regulator claims this allowed Jane Street to make unlawful profits of ₹ 4,844 crore from trades in weekly Bank Nifty and Nifty options. A senior executive aware of the developments said, 'The HFT is very close to closing the loop and is expected to pay the amount as asked by Sebi." Both Jane Street and Khaitan & Co. declined to comment on Mint's queries sent on Monday morning. Sandeep Parekh, founder of Finsec Law Advisors, explained, 'The two options before Jane Street are to challenge Sebi's interim order or to respond to it. A challenge would mean it goes before the Securities Appellate Tribunal and possibly to the Supreme Court, depending on the outcome." "Responding would mean paying the amount and continuing to trade, while reserving the right to seek legal redress as the investigation continues." A pivotal episode in Sebi's case occurred on 17 January 2024, the weekly expiry day for Bank Nifty options. Following disappointing results from HDFC Bank, the index opened 3.2% lower at 46,574. Sebi alleged that Jane Street bought Bank Nifty index futures and constituent stocks worth ₹ 4,370 crore, helping the index recover to 47,212.75 and creating 'an impression of recovery." As the index rebounded, call option prices surged and put options slumped. Sebi claims Jane Street then sold the now-expensive call options and bought cheaper put options, amassing a bearish exposure in Bank Nifty options worth ₹ 32,114.96 crore. In the second phase, Jane Street allegedly unwound its positions, pushing the index and its stocks lower, which increased the value of the purchased puts and decreased the value of the sold calls. This manoeuvre reportedly netted the firm ₹ 735 crore in options profits that day, as the Bank Nifty closed 4.28% lower at 46,064.45. Overall, Sebi alleges that Jane Street profited illegally to the tune of ₹ 4,844 crore over 21 days between August 2023 and May 2025. The regulator has ordered the seizure of these gains and barred Jane Street from the capital market until the funds were deposited in escrow. Sebi also stated that Jane Street entities made a total profit of ₹ 36,502.12 crore between January 2023 and March 2025 through its trading strategies. In an internal communication following Sebi's order, Jane Street said it was 'deeply upsetting" to see the firm 'mischaracterised," and added, 'We are working on a formal response to Sebi." Addressing the specific allegation regarding 17 January 2024, Jane Street stated, 'The strategy termed manipulation by Sebi was in fact a commonplace practice to align the large divergence in prices between the Bank Nifty index options and the price levels implied by its constituent stocks on that day." Shares of BSE Ltd, which were down since Sebi ordered a ban on the US trading firm on 3 July, surged over 3% on Monday. Also Read | SEBI Jane Street case: 5 key lessons retail investors must know Read all market-related news here Topics You May Be Interested In Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
