Jane Street under global scanner? US SEC seeks details from Sebi on derivatives probe: Report

The firm also allegedly placed large sell orders just before options expiry, leading to significant losses for other market participants, primarily retail investors.

The US Securities and Exchange Commission (SEC) has reached out to the Securities and Exchange Board of India (Sebi) seeking details about its ongoing investigation into global trading firm Jane Street, sources told The Economic Times. The Indian regulator has responded to specific queries raised by the SEC, according to people familiar with the development.

The move marks a rare instance of regulatory coordination across borders on allegations of derivatives market manipulation, with both regulators being signatories to the IOSCO Multilateral Memorandum of Understanding, a global framework that allows for sharing information between securities regulators.

“Under Articles 6 to 8 of the IOSCO agreement, a regulator is obliged to share information if another signatory requests it,” said Sandeep Parekh, managing partner at Finsec Law Advisors, as quoted by ET. “This has been invoked before, most notably in the UBS case two decades ago, when Sebi sought help from US regulators.”

The latest development comes after Sebi, in an interim order dated July 3, banned Jane Street from trading in Indian markets and directed the firm to return Rs 4,844 crore, the regulator claimed this was the amount the firm earned through alleged market manipulation. Jane Street has denied any wrongdoing but has deposited the entire amount in an escrow account. Subsequently, Sebi lifted the trading ban on July 21, albeit with conditions.

The high-frequency trading firm, known for its use of complex in-house algorithms, has offices in major global financial hubs. While it is not challenging Sebi’s interim findings in court for now, Jane Street has informed the regulator that it reserves the right to pursue legal remedies in the future.

Sources said Sebi has communicated hearing dates to the firm’s legal representatives. Jane Street, which was given 21 days to respond, is preparing a formal rebuttal to the allegations.

Sebi's order alleged that Jane Street manipulated the NSE Bank Nifty Index, which includes top Indian banks, by using a two-pronged strategy: heavy buying in the morning to push prices up, followed by aggressive selling to drive them down. The firm also allegedly placed large sell orders just before options expiry, leading to significant losses for other market participants, primarily retail investors.

Sebi invoked the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations, claiming that Jane Street exploited its technological and financial capabilities to influence the market. The regulator’s case is based on trading data from around 20 selected days when the firm booked high profits.

While Sebi and the SEC have yet to issue official statements, the case underscores growing international scrutiny over algorithmic and high-frequency trading practices, especially when retail investors are at the receiving end.