MUMBAI: Stating that it has “only engaged in basic arbitrage,” the now-banned US high-frequency trading giant Jane Street has told is preparing its official response to the Sebi charges and the resultant bank and that “arbitrage trades are a core and common mechanism of financial markets.”
International news agency Reuters, quoting the crippled company’s internal communication to its employees, said on Tuesday that it will contest the ban imposed by the Sebi accusing it of market manipulation, claiming that its practices in question are "basic index arbitrage trading".
Jane Street has also told their staff that it is "beyond disappointed" by what it calls "extremely inflammatory" accusations by the Securities and Exchange Board (Sebi) and is working on a formal response, Reuters reported without offering details as what could be the counter measures.
The Sebi Act allows a market participant to challenge any adverse action taken against it by the Sebi, first in the Securities Appellate Tribunal and if not satisfied with the tribunal verdict can go to the high court and even to the Supreme Court.
SEBI last Friday debarred the firm from the market and seized $567 million of its funds which the regulator feels that it gained from its pump and dump strategy during just 21 days of trading during which it had pocketed a whopping Rs 36,503 crore in net profit.
Sebi in its interim order issued by its whole time member Anantha Narayan G, alleged that Jane Street bought large quantities of the 12 constituents of the Bank Nifty index first in the cash and futures markets to artificially support the index in morning trade, while simultaneously building large short positions in index options which were exercised or allowed to expire later in the day, pocketing huge profits in violation of its fair trade rules.
The regulator, which tracked Jane Street's trading patterns for more than two years beginning January 2023 and ending May 2025, has also widened its investigation to include other indexes and exchanges, a source had said. Over the past three years, the derivatives market, which is the world leader in this segment, has had explosive growth as retail investors swarmed in, despite them booking heavy losses.
A study released by Sebi this Monday showed that each retail trader in the derivatives space took a loss of Rs 1.1 crore in FY25, with their net loss increasing by 41% to Rs 1,05,603 crore.The study also found that as much as 91% of individual traders saw losses in equity derivatives segment in FY25, marginally down from its previous study which had showed that 93% had booked losses in FY24.India accounted for roughly 60% of global equity derivative trading volume in May, according to the Futures Industry Association.
This was 75% till November last when Sebi began to clamp down on too much speculative trading in the derivatives by increasing the size lots and also by limiting the weekly expiries. Data out on Monday showed that equity derivative losses for India's retail traders widened by 41% to 1.06 trillion Indian rupees ($12.4 billion) in the financial year that ended in March. In its email to staff, Jane Street said arbitrage trades are "a core and commonplace mechanism of financial markets that keeps the prices of related instruments in line” and that the Sebi view that this activity is "prima facie manipulative" disregards the role of liquidity providers and arbitrageurs in markets, it said in the mail.
Jane Street also denied that it had failed to respond adequately to the Sebi’s concerns, saying its 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. Since February, we have made ongoing efforts to communicate with Sebi and have been consistently rebuffed," the email said.After the order, Sebi chairman Tuhin Kanta Pandey had twice warned that it will not allow market manipulation and that it is enhancing its surveillance to scrutinise manipulation in derivatives trading, but added that there might not be many more cases like Jane Street.Other overseas proprietary trading firms that are active in the country include Citadel Securities, IMC Trading, Millennium and Optiver.