Indian regulator temporarily bans Jane Street from dealing securities

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India’s stock market regulator has temporarily banned Jane Street from dealing securities in the country, accusing the New York-based trading firm of a “sinister scheme” to manipulate derivatives markets.

The Securities and Exchange Board of India said its decision to limit Jane Street’s access to India’s securities markets stemmed from a months-long investigation.

“JS Group was undertaking an intentional, well planned, and sinister scheme and artifice to manipulate cash & futures markets and hence manipulate the BANKNIFTY [Indian bank stocks] index level, to entice small investors to trade at unfavourable and misleading prices, and to the advantage of the JS Group,” the regulator said in its interim order.

“Entities are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly,” it added.

The regulator has asked Jane Street to put $550mn of “illegal gains” in an escrow account, the statement said. If this money is transferred, a person close to the investigation said, the ban could be lifted. Under Indian law, the company could ultimately face a fine up to three times that amount.

Jane Street, one of the largest foreign traders in India’s securities market, has made billions of dollars in recent years from trading options in the country. The group’s global trading revenue last year nearly doubled to more than $20bn, helping it generate profits rivalling those of Goldman Sachs and Morgan Stanley.

In April 2024, the firm sued hedge fund Millennium Management and two former Jane Street employees for allegedly stealing trade secrets by employing a strategy that lawyers for Millennium and the two traders said was focused on India’s options market. The parties settled in December.

The lawsuit drew Sebi’s attention to Jane Street’s trading activities, the regulator said in the interim order published to its website and dated on Thursday.

Sebi last year raised barriers on derivatives trading to curb a frenzy of retail investors piling into the risky market, with 90 per cent of retail investors losing money on the trades last year, according to the regulator. India accounted for nearly 89 per cent of equity options trade volume globally last year, according to the Futures Industry Association.

In its order on Thursday, Sebi said its findings pointed to Jane Street manipulating India’s Nifty Bank index “by aggressively influencing the underlying cash and futures market with significant volumes” close to the day the stock index options expire.

“This in turn can allow them to put on significantly larger and profitable positions in the highly liquid index options market by misleading and enticing large numbers of smaller individual traders,” said the regulator, noting that doing so would violate its rules against fraudulent and unfair trade practices.

By February, Sebi officials had determined that Jane Street “appeared to be engaging in activities in violation” of the regulator’s rules on fair trading and issued a letter of caution to the company.

Sebi said Jane Street appeared to be operating “in disregard of the caution letter” as recently as May 15. Jane Street has 21 days to object to the order and request a hearing, said the regulator.

“Jane Street disputes the findings of the SEBI interim order and will further engage with the regulator,” said a spokesperson for the firm.

“Jane Street is committed to operating in compliance with all regulations in the regions we operate around the world.”