New York-based high-frequency trading firm Jane Street has paid $567 million into an escrow account as mandated by Indian market regulators in an attempt to resume its trading activity in India.
The action comes after a recent directive by the Securities and Exchange Board of India (SEBI) disallowing the company from engaging in Indian securities markets for suspected market manipulation.
Earlier this month, SEBI froze Jane Street's money and said that the firm would not be permitted to trade if it did not put in an equal amount into an escrow account under the watch of a regulator until SEBI completes its investigation.
In a statement issued on Monday, SEBI said that the money had been received and that it was going through Jane Street's formal application to remove the restrictions.
Someone close to the matter stated, "The funds have been parked in good faith. The firm still disputes the order and will lodge a formal reply refuting the claims in weeks to come." Jane Street has yet to comment on a Reuters request for comment, but in internal communication to employees, the firm insists that the strategies being questioned were normal "index arbitrage trading.
In spite of the movement towards compliance, the continuing controversy with SEBI should have a major impact on Jane Street's India business. The nation is the world's largest equity derivatives marketplace, and the company maintains a significant presence there—option trading, which forms the lion's share of its business, being an especially strong presence. One source explained that Jane Street's exposure to India equity derivatives is five to seven times higher than its activity in cash equities. For the meantime, the firm has no plans to restart options trading until the regulatory issue is fixed, it was reported.
A third source indicated that SEBI could direct Indian stock exchanges later this week to remove the trading ban, though with conditions. Exchanges would likely keep a close eye on Jane Street's trading if approved.
Jane Street inflated India's Bank Nifty index by buying heavy quantities of component stocks in the cash and futures markets to push the index up during initial trading hours, as alleged by SEBI. At the same time, the company purportedly accumulated substantial short positions in index options, which were either exercised or left to lapse at the end of the trading session. The regulator has been reportedly monitoring these tendencies for more than two years and is now broadening its investigation to cover other indexes and exchanges.
BSE Ltd. shares rose 3.2% on Monday as people hoped that easing the ban will boost market liquidity.
Jane Street's case is part of increasing focus on India's thriving derivatives market. India's derivatives trading has exploded over the past few years, with regulators concerned that it may be affecting retail investors. India handled almost 60% of global equity derivatives volume in May. Increasing participation has also triggered increasing losses—retail investors incurred equity derivatives losses of 41% last fiscal year, worth 1.06 trillion rupees (approximately $12.3 billion).
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