Jane Street has told its employees that it will challenge the ban by India’s market regulator, the Securities and Exchange Board of India (Sebi), which has accused the US high-frequency trading firm of market manipulation.
The trading giant denied the accusations and claimed that the practices in question were “basic index arbitrage trading”.
‘Beyond disappointed’ by Sebi ban
Jane Street said it was “beyond disappointed”, calling the Sebi accusations “extremely inflammatory”.
The firm is currently working on a formal response to the ban, according to an internal email to employees seen by Reuters.
This comes after Sebi’s Friday order that barred Jane Street from buying and selling securities in the Indian market. The securities watchdog also seized $567 million of the trading company’s funds.
What are the accusations?
Sebi alleged that Jane Street engaged in manipulative practices by purchasing large quantities of constituents in India’s Bank Nifty index in both cash and futures markets.
The regulator claims that it was done to artificially inflate the index’s price during morning trade while simultaneously building large short positions in index options, which were later exercised or allowed to expire.
Sebi’s investigation into Jane Street’s trading patterns spans over two years, widening its investigation to include other indexes and exchanges, Reuters reported.
What’s next for the trading firm
Jane Street has defended its trading practices and is reportedly sounding out Indian law firms for its upcoming battle with SEBI but has yet to hire one.
The next step by Jane Street would likely be to lodge an appeal with the Securities Appellate Tribunal, the news agency reported.
Sebi Chairman Tuhin Kanta Pandey on Monday said that the regulator is enhancing its surveillance for potential manipulation in derivatives trading, but added that there may not be many more cases like Jane Street.
What is Jane Street’s explanation?
Jane Street claimed that arbitrage trades were “a core and commonplace mechanism of financial markets that keeps the prices of related instruments in line”.
The firm states that Sebi’s order that this practice is “prima facie manipulative” disregards the role of liquidity providers and arbitrageurs in markets.
The proprietary trading firm also denied Sebi’s claims that it had failed to respond adequately to the regulator’s concerns, saying the firm’s executives had met with regulators and exchange officials multiple times.
“Once again, we left this process feeling that we had reached an understanding of the concerns and reflected them in modifications to our trading behaviour.”
Jane Street also said that its ongoing efforts to communicate with Sebi were “constantly rebuffed” since February.
