As Jane Street files an appeal before the Securities Appellate Tribunal (SAT) against SEBI, a new report from Reuters reveals that the market regulator launched a formal investigation into Jane Street’s trading practices, even though its surveillance department had recommended otherwise. The report added that SEBI initiated the probe due to continued complaints from market participants.
Amid the fears of market manipulation by Jane Street, SEBI also believed that inadequate data was used in the initial probe into the US. high-frequency trading firm, Reuters reported.
SEBI, on July 4, temporarily barred the firm from local markets on allegations of market manipulation, which the company has denied. Later, the market regulator imposed a $567 million penalty on Jane Street, which the company has deposited. While it can restart trading in India, it has refrained from doing so, Reuters reported last month.
Jane Street’s appeal at SAT
On Wednesday, Jane Street filed an appeal before the Securities Appellate Tribunal (SAT) against SEBI seeking documents and data which led to the formal inquiry.
The firm questioned why the regulator went against the advice of its own surveillance department that the inquiry against Jane Street should be closed and sought documents that supported the regulator’s change of stance.
The appeal will be heard on Monday by the Tribunal.
SEBi’s initial investigation
According to the Reuters report, SEBI’s top leadership was not satisfied with the robustness of the first examination concluded by its own surveillance department on December 11 and chose to initiate a formal investigation towards the end of December 2024, which gives it power to seek data from the trading firm’s custodian bank and domestic trading partner.
A formal investigation is a quasi-legal process under Indian regulatory rules, in contrast to an internal enquiry.
According to Sumit Agrawal, a former SEBI official and founding partner of Regstreet Law Advisor, once a formal investigation is initiated, any prior conclusions lose their weight, and the process begins anew.
“Earlier determinations, whether favourable or adverse, are set aside in favor of an independent investigation,” he said.
SEBI had also continued to receive complaints from market participants of manipulation of India’s key indexes, Reuters said. The firm in its appeal has sought copies of these complaints.
One such complaint was filed by UAE-based options trader Mayank Bansal on December 17, who told Reuters that “communication between a market participant and the regulator is premised on confidentiality”.
The department which oversees India’s market regulation later that month recommended opening an investigation to bring finality to the matter, the first source said.
SEBI tasked a new team with reviewing the firm’s trading activity over a much longer time frame than the trading data examined by its surveillance department. The data was also much more detailed, the two people said.
While the regulator continued the investigation it issued a warning to the firm through Indian exchanges in February that it should refrain from taking large positions on days when derivatives contracts expire, according to regulator’s 4 July order. Price volatility can often spike around those expirations.