SAT admits Jane Street appeal against Sebi in Bank Nifty manipulation case

The Securities Appellate Tribunal (SAT) on Tuesday admitted an appeal by US-based high frequency trading (HFT) firm Jane Street and its affiliates against the Securities and Exchange Board of India (Sebi) over an alleged market manipulation involving the Nifty Bank index.

A three-member SAT bench directed Sebi to file its reply within three weeks. Jane Street can file a rejoinder in the subsequent three weeks. The tribunal has set the next hearing for 18 November for the case, which is being keenly watched as it will have broad implications for the domestic derivatives market.

Jane Street’s personal hearing before Sebi, earlier slated for 15 September, stands adjourned.

Appearing for Sebi, senior counsel Gaurav Joshi submitted that Jane Street had not yet filed any reply to the 3 July ex-parte interim order that suspended the firm’s trading access. He further stated that the details sought by the HFT firm had not been relied upon while passing the order.

Joshi said Sebi’s investigation and enquiry were still ongoing and the scope of the matter could be much wider. As the investigation is at a critical stage, all details that have not been relied upon in the order cannot be shared, he stated. The market regulator has not issued a show-cause notice in the matter.

Joshi also added that Jane Street is required to explain its trading strategies and the regulator cannot share draft reports, minutes of meetings, or analysis of circulars sought by the entities.

Senior counsel Darius Khambata, appearing for the appellants, argued that prior probes by the National Stock Exchange (NSE) and Sebi’s Integrated Surveillance Department had found no manipulation.

Sebi’s 25-month review period overlaps with the NSE’s 16-month investigation, yet reaches the opposite conclusion, he said.

The counsel further sought disclosure of details of the complaint by the UAE-based hedge fund manager following which Sebi is understood to have initiated a fresh investigation. The trading firm has also sought the trade logs investigated by Sebi, some of which it claimed were masked by the regulator when they were shared.

The counsel for Sebi countered that only third-party entity names were masked as they were not relevant to the order.

Khambata disclosed that Sebi had denied sharing such details, stating that it would “lead to confusion” or that they had not been “relied upon” while passing the order.

In its 3 July order, Sebi alleged Jane Street ran a two-legged strategy: amassing Bank Nifty constituents in cash and futures to inflate the index, then unwinding while holding short index options. Sebi asked the HFT trader to return ₹4,844 crore allegedly made by market manipulation. After Jane Street deposited the amount, Sebi lifted the trading ban. Jane Street contends that its trades are routine index arbitrage trades designed to improve price efficiency.