Sebi vs Jane Street: Wider Probe May Throw US Trading Firm under Turbulent Waters

The heat is rising in the Securities and Exchange Board of India’s (Sebi) investigation into US trading giant Jane Street, following allegations of large-scale market manipulation. According to a report in Business Standard, the market watchdog has widened its probe to cover additional strategies and indices, with early findings suggesting that the alleged irregularities may be far more extensive than initially thought.

“Since Sebi’s interim order in July, investigators have broadened their review to include a wider set of securities and longer timeframes. The analysis has revealed fresh trading patterns of concern, indicating manipulation on a much broader scale,” the report said.

An earlier assessment by the National Stock Exchange (NSE), which Jane Street described as a “clean chit” in its appeal before the Securities Appellate Tribunal (SAT) had focused narrowly on trades in a handful of stocks during the first trading hour. Sebi, however, has dug deeper, extending its scrutiny well beyond the interim findings.

The global firm’s minute-by-minute trading patterns first raised red flags during a more detailed review, which ultimately led to Sebi’s interim order in July. A final ruling is expected in due course.

In that July order, Sebi flagged abnormal bouts of volatility around weekly index option expiries, pointing out that certain entities consistently carried the largest exposures in cash-equivalent futures and options, particularly on expiry days. This led the regulator to form a dedicated team tasked with dissecting Jane Street’s trading behaviour.

Initial focus fell on the Bank Nifty index, given its sheer trading volumes, but sources say the scope of the probe has since widened to include the Sensex and other indices.

Meanwhile, in its appeal before SAT, Jane Street has pressed for disclosure of correspondence between Sebi and NSE, as well as a prior surveillance report from within the regulator, insisting these documents are crucial to its defence.

Last week, a three-member SAT bench led by Justice PS Dinesh Kumar directed Sebi to explain within three weeks why certain records cannot be shared. The next hearing is scheduled for November 18. Sebi, for its part, has told the tribunal that it has already handed over some 10 gigabytes of trading data in addition to the NSE report.

Standing its ground, the watchdog has argued that its interim order against Jane Street was based on a far broader investigation than the earlier internal review and that all legally required data had already been provided. Moneycontrol reported that Sebi has maintained its right to withhold internal correspondence, citing previous rulings from the tribunal.

Jane Street has challenged the order, questioning why the regulator ignored its own surveillance team’s earlier findings that had cleared the firm of wrongdoing. That report, delivered on December 11, 2024, drew on NSE’s analysis from November 2024 covering the period July 15, 2023 to January 31, 2024. It reviewed first-hour cash-segment trades and focused largely on whether there were signs of frontrunning. The report recommended the matter be dropped.

“The investigation is at a critical juncture. We cannot provide every single document. Much of what is being sought is confidential, irrelevant or premature,” Sebi argued before the SAT bench.

Jane Street’s temporary trading ban was lifted after the firm deposited around ₹4,844 crore, which Sebi has classified as profits derived from manipulative practices.

But the troubles for the US trading house do not end there. Another storm appears to be gathering, this time from the Central Board of Direct Taxes (CBDT), which is said to be building a case that Jane Street misused provisions of India’s tax treaty with Singapore. Business Standard, citing senior government officials, reported that the CBDT has already gathered material from advisory firm EY and brokerage Nuvama, and is continuing to expand its information pool.

A report will eventually be submitted to the Ministry of Finance, though no timeline has been given. One senior tax official told Business Standard the process would be long, stating that it was a complex task to build a watertight case. “Once it is built, the tax liability will automatically follow,” the official told Business Standard.