What Jane Street’s Return Means for Global Trading Giants; Is Compliance the New Norm?

Weeks after barring Jane Street from trading in the Indian equity market, the Securities and Exchanges Board of India finally gave a clean chit to the US trading giant to re-enter the market, albeit with a twist. The clearance came after Jane Street complied with the regulator and deposited the disputed ‘unlawful’ gains of around ₹4,843.5 crore (roughly $564 million) in an escrow account, and was also accompanied by a few restrictions put in place by Sebi.

The firm remains barred from trading in index options, the segment where the alleged malpractices occurred and cannot resume cash-segment trading until it fully explains its strategies to the regulator. The US firm has reportedly signed formal undertakings for the same and agreed not to ‘cease and desist’ from any fraudulent, manipulative or unfair trading practices identified by Sebi.

Sebi has also directed both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) to keep a close watch on Jane Street’s activities on an ongoing basis, a first-of-its-kind continued surveillance measure for a foreign quant firm.

Sebi’s treatment of Jane Street also sends across a broader signal to other global quant and high-frequency trading (HFT) firms active in India. The watchdog has already expanded its lens to firms such as Citadel, Millennium, Tower Research and Alphagrep.

As per a report by the Indian Express, Sebi has asked exchanges to analyse the trades of these firms ‘to determine whether similar questionable strategies were used’. This tells that while India remains open to sophisticated traders, Sebi now expects them to adapt or abandon any aggressive strategies viewed as unlawful by the regulator.

In practical terms, Sebi’s handling of the Jane Street saga shows other foreign trading firm that the surveillance around their activities will remain much tighter and failure to adhere to the regulator’s norms might lead to giving up of windfall gains through compliance or risk getting banned from the securities market.

Balancing Compliance and Liquidity

That said, Sebi also has a delicate balance. Giant foreign trading firms make up a big chunk of volumes in India’s derivatives market and a heavy crackdown on these entities poses the risk of a drying up liquidity. he market felt that impact when Jane Street was first banned as it dried up options turnover in the derivatives market by over 30% as compared to the average.

So far, Sebi seems to be treading the line well. By allowing Jane Street a conditional return, it shows that compliant firms can continue under close watch, provided they play by the rules. This dual message: welcoming foreign participation, but refusing to tolerate misconduct, calls for prep for foreign firms. They must be ready to explain or adapt their algorithms and maintain real-time transparency in a compliance-heavy environment.

How Sebi’s regulatory actions stack up against global peers?

While all major equity markets now demand rigorous compliance for algorithmic trading, most rely on pre-trade compliances and strong real time risk checks. In India, that infrastructure is still in its nascent stage, with the Sebi aiming to set it up in full throttle.

What sets Sebi apart is its emphasis on post-trade enforcement. Its order demanding billions in escrow is far more punitive than anything typically seen in Europe or the US. To that effect, a firm trading in India today can expect both the standard pre-trade compliance burdens and the possibility of retrospective actions if its strategies come under suspicion.

For global trading firms, this means the overall compliance burden in India is now at least as high as in major markets. They must maintain the same level of risk management, but also be prepared for additional scrutiny and the need to defend their algorithms explicitly to regulators.