SEC Requests Sebi Information Amid Ongoing Jane Street Investigation
The U.S. Securities and Exchange Commission (SEC) has reached out to the Securities and Exchange Board of India (Sebi) for information regarding its investigation into Jane Street, a proprietary trading firm based in New York. The firm is accused of manipulating India’s derivatives market. Sebi has reportedly responded to the SEC’s inquiries, adhering to international regulatory agreements that mandate cooperation between signatory bodies.
Details of the Investigation
The SEC’s request for information comes as part of its ongoing investigation into Jane Street, which has been accused of engaging in manipulative trading practices that affected the Bank Nifty Index. According to reports, Sebi issued an interim order on July 3, barring Jane Street from trading and requiring the firm to deposit approximately ₹4,843.57 crore, which is believed to be the amount gained through alleged manipulation. Jane Street complied by placing the full amount in an escrow account. Following this, Sebi conditionally lifted the trading ban on July 21, a decision that has been praised by legal and market experts for balancing due process with investor protection.
Sandeep Parekh, managing partner at Finsec Law Advisors, emphasized that both the SEC and Sebi are signatories to the IOSCO multilateral agreement, which obligates them to share information for regulatory purposes. This framework has been previously utilized by Sebi in its investigations, including one involving UBS. As the investigation unfolds, Jane Street has been informed of upcoming hearing dates, and its legal team is preparing a formal response to the allegations.
Allegations Against Jane Street
Sebi’s investigation alleges that Jane Street utilized its advanced trading capabilities to manipulate market conditions, specifically through aggressive buying in the morning and selling at the end of the trading day. This strategy reportedly impacted the index levels close to expiration dates, adversely affecting retail investors who were on the opposite side of these trades. The regulator has invoked the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations, using trading data from around 20 profitable days to quantify the alleged illegal gains.
Legal experts have raised concerns about Sebi’s methodology, arguing that it focused solely on a limited number of profitable days rather than assessing the entirety of Jane Street’s trading activities. One securities lawyer noted that the investigation seemed to cherry-pick winning days from a broader set of trades, which could skew the findings. As the investigation continues, Sebi has also requested that exchanges closely monitor Jane Street’s future trading activities.
Future Implications and Responses
The ongoing investigation by Sebi could potentially expand to include other indices, such as the NSE Nifty Index, and additional stocks. A confirmatory order will be issued once the hearing process concludes. Corporate lawyer HP Ranina described Sebi’s actions as “objective and fair,” indicating that if Jane Street is ultimately cleared of the allegations, the deposited funds would be returned to the firm.
Market expert Sunil Shah commended Sebi for its efforts to protect retail investors, expressing hope that the regulator will continue to monitor trading practices to prevent larger institutions from exploiting smaller investors. As the situation develops, both regulatory bodies are expected to maintain a close watch on the proceedings, ensuring that investor interests remain safeguarded throughout the process.
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