India’s market regulator SEBI (Securities and Exchange Board of India) has done well to stop the Jane Street Group, a global securities trading firm, from accessing the securities market in the country for making unlawful gains through allegedly manipulative trading practices.
The regulator has also ordered the impounding of the US-based firm’s unlawful gains, estimated at Rs 4,843 crore. The bar extends to entities associated with Jane Street, and they are prohibited from buying, selling or dealing in securities, directly or indirectly.
The action follows violation of rules through “alleged unauthorised use of their proprietary trading strategies in India” to mislead traders, and profit from derivatives positions.
The SEBI order has described how Jane Street aggressively bought stocks and futures in the mornings to push the indices up, and then reversed the trades in the afternoons, profiting from their futures positions.
The order noted that the high-frequency trading group operated an “intraday index manipulation pattern,” involving segments across equities, futures, and options simultaneously.
Techniques involving algorithmic trading, AI, and data science are increasingly used in the market to gain unfair advantage, often in violation of rules. SEBI said the group has prima facie engaged in manipulation for at least 21 days. It was under investigation for some months and the NSE (National Stock Exchange) had cautioned it earlier this year, but the group continued with its strategy.
The derivatives market in India has expanded rapidly in the last few years.
The stock market itself has been touching new heights and more people are investing in it. India has the world’s largest equity derivatives market which accounts for about 60% of the global trading volume and so, the risks involved in wrongful trading and illegal practices are clear.
Proprietary trading firms are responsible for a good part of the activity; their withdrawal is likely to affect retail investors. However, action against those who violate the rules and norms is non-negotiable.
It has been reported that nearly 93% of retail options traders lose money in the market. So it is imperative for SEBI to remain vigilant to prevent acts of fraud and initiate appropriate corrective action.
India has seen huge market manipulations such as the 1992 securities scam involving Harshad Mehta. Its regulator has invited criticism for failing to discharge its duties on some occasions.
Even in the Jane Street case, it has faced questions over its delayed response. In line with the criticality of its functioning, the regulatory body should equip itself with the latest technological tools to keep pace with modern trading techniques.