A Tighter Control

Experts say the Jane Street saga may trigger wider surveillance regulations without curbing innovation

- By NASRIN SULTANA

THE ALLEGED MARKET manipulation by US-based high frequency trading firm Jane Street is likely to bring about tighter mechanisms for investor protection and a broader overhaul of the regulatory landscape in India's capital markets.

“Regulatory mechanisms need to be tightened to ensure that the big fish do not dominate the market or any particular security or index, which appears to be the case here [with Jane Street]. and allowing derivative position only for hedging would go a long way towards it, though the market breadth would suffer as derivatives trades outnumber spot market trades 300:1,” says Nitin Balwani, associate dean and professor (finance), NMIMS Navi Mumbai. He adds that market manipulation is a significant threat to all markets, and regulators strive to control it without compromising on fairness and price discovery.

Following a deposit of ₹4,844 crore in an escrow account—as directed by Sebi in its interim order on July 3—the market regulator has allowed Jane Street to resume trading and access Indian securities. However, the lifting of the ban comes with certain riders, and stock exchanges have been directed to closely monitor the firm's future dealings and positions of the group.

Ranjan R Chakravarty, professor of practice-finance, Great Lakes Institute of Management, lauds Sebi's move as a calibrated response “that prioritises both accountability and access to the market”. “Permitting reentry after punishment indicates an environment that is both corrective as well as oriented towards the future. It also upholds the notion that strong compliance and level playing fields are necessary for everybody, irrespective of the size and sophistication,” Chakravarty says.