Jane Street to contest India market ban, calls SEBI's allegations "inflammatory"

US high-frequency trading firm Jane Street has announced its intention to contest the ban imposed by India's financial regulator, the Securities and Exchange Board of India (SEBI), which accused the firm of market manipulation. In an internal email seen by Reuters, Jane Street expressed being "beyond disappointed" by what it termed "extremely inflammatory" accusations and stated that the practices in question were merely "basic index arbitrage trading."

SEBI on Friday barred Jane Street from buying and selling securities in the Indian market and seized $567 million of its funds. The regulator alleged that Jane Street artificially influenced India's Bank Nifty index by buying large quantities of its constituents in the cash and futures markets to inflate its price during morning trade. Simultaneously, the firm allegedly built significant short positions in index options, which were then exercised or allowed to expire, profiting from the manipulated price movements. SEBI's investigation, which has tracked Jane Street's trading patterns for over two years, is reportedly expanding to include other indexes and exchanges.

Jane Street, known for its proprietary trading, argues that arbitrage trades are "a core and commonplace mechanism of financial markets that keeps the prices of related instruments in line," and that SEBI's classification of this activity as "prima facie manipulative" disregards the vital role of liquidity providers and arbitrageurs. The firm also countered SEBI's claim of inadequate response, stating its executives had met with regulators and exchange officials multiple times, believing they had reached an understanding and modified their trading behavior. Sources indicate Jane Street is seeking Indian law firms and is likely to appeal the order to the Securities Appellate Tribunal. This development comes as India's derivatives market, the world's largest, faces increased scrutiny due to explosive growth and significant losses incurred by retail investors.