Sebi shares Jane Street probe details with SEC

Synopsis

The US SEC has requested details from SEBI regarding the Jane Street probe, focusing on alleged derivatives market manipulation. SEBI has responded to the SEC's queries, adhering to IOSCO guidelines for information sharing between regulatory bodies.

Mumbai: The US Securities and Exchange Commission (SEC) has sought details from its counterpart in India about the Jane Street probe over allegations of manipulating the derivatives market. Sebi has replied to the specific queries of the SEC, said people familiar with the development.

The SEC and Sebi didn't respond to queries.

"A regulator that's a signatory to the International Organization of Securities Commissions (IOSCO) pact is obliged to share any info requested by any other signatory under articles 6 to 8," said Sandeep Parekh, managing partner of Finsec Law Advisors.

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No Legal Action from Co for Now

"As both are signatories, the SEC can seek any information required and Sebi would be obliged to give it for regulatory action or investigation," Parekh said.

IOSCO is a grouping of national securities regulators.

"This has been used multiple times by Sebi, most notably in the UBS matter two decades ago to get information about the Swiss company from the US regulator," Parekh said.

The Securities and Exchange Board of India had on July 3 imposed a trading ban on the firm in an interim, ex-parte order and directed it to return Rs 4,844 crore, quantifying this as illegal gains from market manipulation. Jane Street, which has denied any wrongdoing, deposited the entire amount stipulated by Sebi in an escrow account. Following this, Sebi lifted the trading ban on the firm, albeit with conditions, on July 21.

Jane Street, which has offices in all the key financial centres of the world, uses complex algorithms developed in-house to execute high-frequency trades. It isn't challenging Sebi's findings in court for the time being. But it has told Sebi that it reserves the right to seek legal and equitable rights and remedies.

21 days to submit response
The regulator has informed the trading company's law firm about the dates for hearings into the case, said one of the persons cited above. Jane Street had been given 21 days to respond to the interim findings. Its legal representatives are preparing a formal reply to the regulator, rebutting the allegations, said people with knowledge of the matter.

Sebi said the NSE's Bank Nifty Index - comprising the stocks of India's top dozen lenders - had been manipulated in a complex and illegal manner, aided by the Jane Street Group's trading, financial and technological prowess. Jane Street would drive up prices with heavy buying in the morning and send them down through a selling spree later in the day, according to Sebi. It also sought to push index levels down with heavy sell orders close to the option expiry, the regulator said. This caused losses to those at the other end of the trade, mostly retail investors, it said.

Sebi invoked the prohibition of unfair trade practices (PFUTP) regulations for market manipulation, which covers any act or practice. It focused on Jane Street's trading data of about 20 random days showing the highest profits.

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