Decoding the SEBI Order on Jane Street: What It Means for Indian Markets

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🧾 Session Overview

The webinar began with introductions, technical setup, and context-setting on the SEBI order against Jane Street for alleged market manipulation involving ₹4,843.57 crores. The session was a deep dive into index and options market manipulation, regulatory lapses, and the broader impact on retail investors and market integrity.

Key Themes & Insights

1. Market Manipulation Mechanism

• Jane Street allegedly exploited expiry strategies:
• • Volatile Expiry: Created artificial panic to crash index values.
  • Quiet Expiry: Managed settlement prices quietly via FII channels.
• Maintained massive undisclosed delta-neutral positions using multiple brokerage entities, avoiding regulatory triggers.

2. Regulatory Oversight Gaps

• SEBI failed to detect 23% open interest exposure across indices and derivatives.
• Lack of real-time delta-based surveillance enabled manipulation of ATM/OTM strikes.
• Strike price intervals (currently fixed) allow easier manipulation; percentage-based intervals recommended.

3. Structural Weakness in Index Composition

• Nifty Bank index concentration: Top 5 stocks account for ~80% weight, making it easy to manipulate.
• Suggested reform: Limit constituent weightage using international best practices.

4. Financial Forensics & Tax Loopholes

• Jane Street made losses in cash/futures but profited abnormally in options, showing intent to manipulate, not arbitrage.
• Use of DTAA loopholes suspected. Recommendation: Income Tax Dept. to explore 5% upfront tax on trades like China.

5. Legal Analysis of SEBI Order

• SEBI invoked the "preponderance of probability" standard.
• Restitution clause (Para 46) allows affected retail investors to submit claims.
• Legal experts urged proactive claims, as SEBI may otherwise remit funds to the Consolidated Fund of India.

6. Investor Protection & Role of SIREN

• SIREN (Small Investors' Rights & Education Network) aims to:
• • Monitor trading patterns.
  • File alerts to SEBI.
  • Launch a new research and complaint portal.
• Encouraged retail investors to unite and file restitution claims.

🛠️ Recommended Action Points

➤ For SEBI:

➤ For Income Tax Dept.:

• Implement upfront 5% tax deduction on derivatives trades to plug DTAA misuse.

➤ For SIREN:

➤ For Retail Investors:

• File claims under Para 46 of the SEBI Jane Street order.
• Stay updated with SIREN’s updates and regulatory follow-ups.

📣 Voices from the Panel

• Puratan Bharti: Emphasized impact on long-term investors, inefficiencies in real-time monitoring, and the need for volatility analysis during expiries. Highlighted how experienced traders were forced to stay out for months.
• CA Arun Goenka: Called for retail investor unity and systemic regulatory reform. Advocated stricter action against manipulators.
• CA Amitabh Gupta: Explained how index manipulation was executed, and that market inefficiencies were exploited across jurisdictions.
• Ravi Prakash (Capital Markets Lawyer): Explained SEBI’s legal stance, importance of documentary evidence, and practical issues around restitution eligibility.
• CK Bhartiya: Highlighted risk of concentrated indices, and called for strike price reforms and global benchmarking.

🔍 Market Case Studies and Observations

• Straddle mispricing, 3-sigma deviations, and ATM/OTM positioning patterns were used to engineer expiry-day manipulations.
• Despite using “hedged” positions, actual intent was speculative and manipulative.
• Comparable to Liquid Stock Options case, showing a systemic pattern of behavior.

📦 Conclusion: Building Market Integrity

The webinar ended with a unified call to:

• Strengthen SEBI's regulatory framework
• Ensure justice for retail investors
• Encourage public participation in oversight via community initiatives like SIREN
• Foster collaboration between investors, regulators, and legal experts to protect market sanctity.

📌 Webinar Details

• Title: Decoding the SEBI Order on Jane Street: What It Means for Indian Markets
• Host: CA Arun Goenka, Founder- SIREN & WIRC ICAI Governance Council Member
• Panelists: CA Arun Goenka, CA Amitabh Gupta, CA Chandrakant Bhartiya, Ravi Prakash (Capital Markets Lawyer), Puratan Bharti, Founder – PFA Institute
• Organized By: SIREN (Small Investors' Rights & Education Network)