MC EXCLUSIVE SEBI likely probing Jane Street following market manipulation complaints, say sources

This is separate from the reported investigations that the National Stock Exchange (NSE) was conducting into Jane Street's FPI (foreign portfolio investor) arm Jane Street Singapore. Moneycontrol had reported that the exchange's surveillance systems had flagged certain derivatives trades made by the entity.

Also read: Hedge funds sound alarm on options market manipulation; approach Sebi

While the regulator may take inputs from the exchange's investigations, sources said that SEBI's scrutiny is more focussed on concerns that a few fund managers had raised about possible market manipulation.

The regulator started its investigations after receiving complaints from various quarters.

Market manipulation

Certain hedge fund managers had told Moneycontrol earlier that they had complained to the regulator about some odd market behaviour.

Derivative prices are supposed to move in tandem with the underlying asset, or with an expected move in the underlying asset, which in this case is the index.  However, in the Indian market, things can be a little different, they explained.

What they were seeing was a sharp price movement in derivatives and then a subsequent price movement in the underlying asset to justify the former. This was happening on what came to be known among fund managers as "violent expiry days."

Then there were "quiet expiry days." As one fund manager explained to Moneycontrol: "These are expiry days when option prices are half or lower than what they should be, and these are followed by absolute and unreal quiet in the market.”

Option prices are meant to be a reflection of the exposure risk, but these option prices were behaving otherwise.

Better measures

To ensure that there was no hidden risk in the market, SEBI proposed a new measure to capture exposure risk through a consultation paper issued on February 24, 2025.

The market regulator proposed using delta-based open interest (delta OI) or future equivalent OI (FutEq OI) to measure exposure risk; currently, notional OI is used to measure exposure risk.

This had come after a December 2024 circular, in which SEBI had asked stock exchanges and clearing corporations (CCs) to monitor intraday positions to ensure that no entity was breaching the regulatory limit on exposure risk. The regulatory limit, which applies only to naked positions, is set at a notional OI of Rs 500 crore.

In that circular, the regulator had also asked the exchanges and CCs to penalise entities breaching these limits. But later, after taking into account market feedback, on March 28, 2025, SEBI said that the exchanges and CCs can monitor these limits and alert entities when there were breaches.

The delta-based OI or FutEq OI as a measure of risk is yet to be operationalised.

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