SEBI Probes Three Years of Jane Street’s Derivatives Trading Activity

The Securities and Exchange Board of India (SEBI) has launched a wide-ranging probe into the derivatives trading activities of global quantitative trading firm Jane Street, including its affiliates Jane Street Singapore Pte and JSI Investments. The investigation aims to establish whether the firm manipulated India's benchmark indices through outsized and repeated trades.

Focus on Index and Banking Stocks

SEBI is scrutinising Jane Street’s algorithmic trading strategies in the National Stock Exchange's index of top 50 stocks and its banking index. The regulator is analysing patterns involving large derivatives positions in index constituents, particularly bank stocks, followed by trades in the physical market to allegedly profit from index movements.

India does not restrict traders from taking intraday positions across both derivatives and physical markets. However, SEBI's surveillance systems flag repeated trades exceeding ₹10 billion ($116.93 million), which has become a point of concern.

Profit Margins Raise Red Flags

The report is being prepared with assistance from the stock exchange. Following its completion, a regulatory notice will be sent to Jane Street asking for clarification regarding its trading activities.

The investigation reportedly stems from unusually high profits made by Jane Street, almost five times more than the second-largest trading firm. The firm began India operations in December 2020 and earned ₹200 billion ($2.34 billion) in revenue from the country as of December 2024, contributing to its global net trading revenue of $20.5 billion in 2024, according to Bloomberg.

Triggered by Industry Complaints

Complaints from several large institutional investors prompted SEBI to examine Jane Street’s trading behaviour. The issue gained more relevance after Jane Street accused Millennium Management of stealing a proprietary India options strategy that earned Jane Street $1 billion in 2023.

The 2 firms settled the lawsuit in December, but the incident brought additional focus on Jane Street's India operations and its dominance in high-frequency trading and ETFs.

SEBI’s Broader Surveillance Push

SEBI is now working to enhance the monitoring of large, concentrated intraday positions. The positions maintained over consecutive days could attract a regulatory investigation.

Exchanges will also be instructed to periodically audit algorithmic programmes of major trading firms. These programmes are already required to be approved before use, but SEBI aims to strengthen oversight further. Thresholds for these investigations are still being finalised.

Read More: SEBI Expands Probe Beyond Jane Street: Bait and Switch Strategies in Derivatives Under Scrutiny!

Conclusion

As Jane Street faces regulatory heat, SEBI’s investigation may mark a shift in the regulatory climate for high-frequency and algorithmic trading in India. The findings could significantly influence how India’s derivatives markets are monitored going forward. 

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