In an interim order, the Securities and Exchange Board of India accused global trading firm Jane Street of deliberately manipulating the index through a series of trades that it said lacked “plausible economic rationale.” SEBI called it a case of “intra-day index manipulation,” flagging what it described as aggressive, unhedged positions in Nifty Bank options and other instruments that were rapidly built up and unwound on expiry day.
Jane Street, in its response, said the regulator failed to account for how arbitrage works across markets. “We reject the premise and the substance of the order in the strongest possible terms,” the firm told employees. It said its trades aimed to profit from a mispricing between Nifty Bank’s options and the index value derived from the underlying stocks.
A Jane Street note to its employees included a graph showing a divergence between options-implied index levels and stock-based index prices at the open on Jan. 17. “We traded in a direction consistent with closing that gap,” the firm said. “We believe the trading activity shown here is unambiguously good for the health of financial markets.”
For now Jane Street will continue to trade in the market and the stock exchanges and the market regulator will continously monitor its trades.
The SEBI investigation is expected to take another 6-9 months before a final report and show cause notice will be issued to Jane Street.
