The Jane Street Group is expected to argue that its controversial options trades in India were a reaction to excessive demand from retail investors, as reported by Bloomberg News, according to sources familiar with the situation.
The Securities and Exchange Board of India barred the New York-based trading firm from trading securities in the Indian market in an interim order on July 3, describing that some of its trading strategies were manipulative and resulted in losses for retail investors.
The Indian market regulator accused Jane Street and its affiliated entities of manipulating the Bank Nifty index by buying significant amounts of constituent stocks in both the cash and futures markets to artificially prop up the index during morning trading. At the same time, they were creating short positions in index options.
SEBI allows Jane Street
Last week, SEBI removed the trading restrictions placed on Jane Street after the company put $567 million into escrow. On Monday, Jane Street announced that it has requested more time to reply to the interim order.
Jane Street is expected to argue it was eager to facilitate options bets from the country’s retail investors, knowing it would be largely unhedged, Bloomberg News reported.
Jane Street was likely to say that it wanted to make options bets easier for ordinary investors in the country, even though it knew they would be mostly unhedged, said Bloomberg.
The report stated that the company likely hedged less aggressively in India than in other markets and that it spread its hedging activity over several hours on January 17, 2024, which was its most profitable day during the two years it was under regulatory scrutiny, to minimise market impact.
What steps Jane Street taken till now?
Three weeks back, Jane Street came out strongly against the market watchdog, regarding the regulator’s recent allegations about its trading activity. In an internal email sent to employees over the weekend, the global trading firm criticised SEBI’s interim order as being based on “many erroneous or unsupported assertions” and expressed its intent to challenge the charges.