Jane Street ban: What SEBI Chairman Tuhin Kanta Pandey says

Amid revelations of stock manipulation by a global proprietary trading firm, a white paper on the derivatives trading is expected to be released soon, featuring a three-month analysis of weekly expiry data and signs of market manipulation.

To recall, SEBI last week barred Jane Street and its associated entities including Jane Street Singapore and JSI Investments, from accessing the domestic securities market, amid alleged unlawful gains amounting to Rs 4,843 crore.

Jane Street operated in both cash and derivatives markets as a Foreign Portfolio Investor (FPI) and as a trading membe. SEBI found that Bank Nifty index- a major index of the securities market comprising 12 stocks of India's major banks -- was manipulated in a complex and illegal manner aided by what it called the JS Group's immense "trading, financial and technological prowess."

On the sidelines of an event today, SEBI Chairman Tuhin Kanta Pandey said the markets regulator was watching this as a surveillance issue, adding that surveillance at both at the exchange level and the SEBI level will continue going ahead.

"It is a great deal of analytical work which has been done based on high volume of data. But, manipulative practices can be, you know, worked out by different players in different ways. So, there is no one particular way in which you have to assess. Obviously, our regulations as you know PF, UTP regulations very clearly mention that manipulative and fraudulent practices are not allowed in the market," Pandey said.

He pointed out that SEBI has all the powers to investigate such practices within the regulation, adding that surveillance mechanisms will be upgraded further to strengthen oversight.

Following the ban, Jane Street Group expressed its disagreement with the SEBI regarding the latter's interim order. It said it would fully cooperate with SEBI, affirming its commitment to regulatory compliance globally.

"And of course, everyone also has freedom to challenge those actions and there we are living in a democratic world where we have got, people have avenues to do that and what SEBI had to do at the interim stage, they have already indicated. And the order itself speaks for itself," Pandey said.

Jefferies said there is unlikely to be any counterparty risk related to Jane Street’s contracts, as trades are guaranteed by clearing corporations and the firm has three months to unwind open positions. "Hedge funds typically hold larger positions in Single Stock Futures (SSFs), with relatively limited activity in options," Jefferies noted.

The key unknown, Jefferies said, is whether this instance can lead to a knock-on impact on trading volumes. The foreign brokerage said trends over the next week on derivatives volumes will be key to watch, especially the index derivatives expiries on Tuesdays and Thursdays.

"It is interesting to note that index options premium turnover was tad higher week-on-week for both exchanges (i.e this Friday vs. last Friday) and a tad lower than 2-month averages," Jefferies said.

With millions of active retail traders and deepening institutional activity, India’s market opportunity is structural, not cyclical and certainly not dependent on any one firm, said Dinesh Thakkar, Managing Director, Chairman and the Founder of Angel One.

"SEBI’s clampdown will bring sharper compliance and more robust governance thus, strengthening market integrity and raising the bar for all. Players may change, but India’s capital market continues to deepen, diversify, and grow," he said.