BREAKINGVIEWS-Jane Street ban is poor fix for India options woes

By Shritama Bose

MUMBAI, July 4 (Reuters Breakingviews) - For many years now, banks and other market rivals have been wondering where and when regulators would lock horns with the booming high-frequency trading business. India, it seems, is the site of the battle. The country’s markets regulator banned Jane Street and ordered the seizure of $567 million on charges of market manipulation, which the U.S. firm denies. There are better ways to achieve authorities’ aims.

The Securities and Exchange Board of India on Thursday charged Jane Street affiliates with illegal manipulation of securities in the Nifty 50 and Nifty Bank indexes between January 2023 and March 2025. The New York-based giant, whose global net trading revenue almost doubled last year to $20.5 billion according to the Financial Times, told Reuters that it disputed the findings. It is one of a clutch of players, including Citadel Securities, that makes money by quickly buying and selling securities and profiting from small differences between bid and ask prices.

The regulator’s interim order expresses concern about the size of trades made by the outfit and its ability to move markets to the detriment of small investors. Mom-and-pop traders have indeed been losing money hand over fist recently, with some laying blame at the feet of sophisticated and deep-pocketed counterparts like Jane Street: 93% of over 10 million individual derivative traders incurred losses during the three years to the end of March 2024, according to SEBI.

Indian derivatives, and retail exposure in particular, are conspicuously large. More than 36.8 billion equity index options were traded on the country’s two main bourses during the three months to June 2024, per the Futures Industry Association, which was equivalent to more than two-thirds of all futures and options traded on every exchange around the world. Retail investors accounted for 41% of overall derivative trading volumes.

Officials recognise the dangers of these numbers, which arguably reflects an excessively high risk appetite among stay-at-home traders. One watchdog, SEBI’s Ashwani Bhatia, said last year that having the largest derivative volumes in the world “is a crown we should not wear”. SEBI also lowered the number of weekly options contracts available to trade for investors to one per exchange and raised the minimum trading amount nearly three times in October.

What’s less clear is why any of this is Jane Street’s fault. Being big and hyper-profitable is not the same as market manipulation. It’s possible that the U.S. firm’s share of trading will just be taken over by a rival. Proponents argue that high-frequency players make security prices more efficient and provide valuable liquidity to the market.

The real takeaway is that India’s drive to keep mom-and-pop traders safe needs to go further. SEBI is already proposing tighter rules for trading derivatives of individual stocks. The Jane Street order echoes a past saga involving Hindenburg Research’s salvo against the Adani Group in 2023, and SEBI’s 2024 notice to the now-defunct short-seller.

As India signals greater integration with the world, such run-ins are likely to get more frequent. Bans undermine the goal to open up. Tighter seatbelts on small investors would be the better option.

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CONTEXT NEWS

The Securities and Exchange Board of India barred U.S. trading company Jane Street from the local market and ordered the seizure of alleged unlawful gains of 48.45 billion rupees ($567 million) in an order dated July 3.

The regulator charged the high-frequency trading outfit with illegal manipulation of securities in the Nifty 50 and Nifty Bank indexes on 17 trading days between January 1, 2023 and March 31, 2025.