NSE Probes Wall Street Firm Jane Street Over Suspicious F&O Trades

According to a Moneycontrol report, Jane Street, a global giant in proprietary trading known for handling transactions worth trillions, is now facing regulatory scrutiny in India. The National Stock Exchange (NSE) has reportedly initiated a probe into certain derivatives trades carried out by Jane Street Singapore Pte, a registered Foreign Portfolio Investor (FPI), raising concerns about market conduct and potential manipulation.

NSE Flags Suspect Derivatives Trades

As per Moneycontrol reports, the NSE’s surveillance systems flagged certain trades executed by Jane Street in the derivatives market, which were rapidly reversed with the same counterparties. These transactions were carried out at prices significantly higher or lower than the preceding trades, triggering suspicion of irregular trading patterns.

The trades under question were executed using automated systems. Jane Street, along with its custodian bank, claimed there was no human intervention and therefore no malafide intent. In response to the NSE’s notice sent in January, both parties stated that the trades were machine-based and driven by algorithmic models.

Sources familiar with the matter indicated that such trades are common among large F&O players who use multiple AI-driven models. At times, these systems may generate conflicting trades within microseconds. The probe is not limited to Jane Street alone; three to four other FPIs have reportedly received similar notices and are currently responding to the exchange.

Context and Regulatory Backdrop

This scrutiny comes amid a boom in Jane Street’s India operations. In April 2024, the firm also accused two former traders Doug Schadewald and Daniel Spottiswood of stealing highly valuable trading strategies, according to Bloomberg.

Globally, Jane Street came into the spotlight when the Financial Times reported in 2021 that the firm had traded $17 trillion worth of securities in 2020 and managed $8 trillion in ETF assets, with a focus on bond ETFs.

Meanwhile, India’s F&O market has been experiencing increased activity from both foreign funds and domestic traders. To manage this surge and maintain market integrity, the Securities and Exchange Board of India (Sebi) tightened regulations in November 2024. Measures included increasing contract sizes to ₹15 lakh, limiting weekly expiries to one benchmark index per exchange, enhancing margins, and introducing intra-day position monitoring.

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Conclusion

While Jane Street maintains that the flagged trades were purely algorithm-driven and lacked any fraudulent motive, the NSE’s investigation highlights the regulatory focus on maintaining discipline in India’s evolving derivatives market. The outcome of this probe may play a critical role in shaping the framework for automated and high-frequency trading by foreign funds.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.