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Jane Street intends to contest the SEBI ban, asserting it was involved in fundamental arbitrage.

U.S. high-frequency trading firm, Jane Street, will challenge a restrictions order from India's financial authority, who has levied allegations against the company.

Jane Street plans to contest SEBI's ban, asserting that its activities involve standard arbitrage.
Jane Street plans to contest SEBI's ban, asserting that its activities involve standard arbitrage.

Jane Street intends to contest the SEBI ban, asserting it was involved in fundamental arbitrage.

In a dramatic turn of events, India's Securities and Exchange Board (SEBI) has barred U.S.-based global trading firm, Jane Street, from buying and selling securities in the Indian market. The regulator seized $567 million of its funds, as it alleges that Jane Street manipulated the Bank Nifty index through aggressive intraday trading.

The accusations against Jane Street involve what SEBI terms as "basic index arbitrage trading". The firm, however, strongly denies these allegations, describing SEBI’s accusations as "extremely inflammatory" and asserting the trades in question were merely "basic arbitrage trading", a common and legitimate practice in financial markets.

SEBI's order alleges that Jane Street bought large quantities of constituents in India's Bank Nifty index in both the cash and futures markets to artificially support the index in morning trade. Simultaneously, SEBI claims Jane Street built large short positions in index options, which were exercised or allowed to expire later in the day. This strategy, according to SEBI, constitutes market manipulation.

Jane Street is "beyond disappointed" with the accusations and is working on a formal response. The firm has communicated to its staff that it intends to contest the ban and the charges through a response within SEBI’s stipulated 21-day period.

The controversy emerged after Jane Street filed a lawsuit in the U.S. against former traders for allegedly stealing its proprietary India-based options strategy, which drew SEBI's attention and triggered its investigation.

SEBI Chairman Tuhin Kanta Pandey stated that the regulator is enhancing its surveillance to scrutinize manipulation in derivatives trading. He also mentioned that there may not be many more cases like Jane Street.

Over the past three years, India's derivatives market has experienced explosive growth. Retail investors swarmed in, but this growth has also led to losses for many ordinary investors, causing concern for regulators. Simultaneously, India accounted for approximately 60% of global equity derivative trading volume in May, according to the Futures Industry Association. India's derivatives market is now the world's largest.

This case is significant as it may reshape regulatory scrutiny of foreign institutional investors in India's financial markets. 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.

Other overseas proprietary trading firms active in India include Citadel Securities, IMC Trading, Millennium, and Optiver. Meanwhile, Aditya Birla Sun Life AMC marks the first close of its maiden performing credit fund.

[1] The Economic Times, SEBI bans Jane Street from trading in Indian markets, seizes $567 million of its funds, 24th March 2023. [2] Reuters, Exclusive-SEBI accuses Jane Street of market manipulation in India, 23rd March 2023. [3] BloombergQuint, SEBI Bans Jane Street From Trading in Indian Markets, 24th March 2023.

In response to the accusations of market manipulation, Jane Street plans to contest the ban and charges within SEBI’s stipulated 21-day period, maintaining that their trades were merely a common and legitimate practice in financial markets – investing in the Indian market through 'basic arbitrage trading'. This case may reshape regulatory scrutiny of foreign institutional investors in India's financial markets, particularly those involved in business activities such as finance and investing.

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