Sebi-Jane Street battle may drag on

WITH THE SECURITIES Appellate Tribunal (SAT) all set to hear US market maker Jane Street's arguments against Securities and Exchange Board of India's (Sebi) interim order on Tuesday, there are strong chances that it could be the beginning of a long-drawn battle.

- NESIL STANEY

The stakes are very high for both: For the market regulator, this is the first time it has taken on a significant foreign portfolio investor – one of Wall Street's biggest names – for market manipulation. The interim report, while pointing out strategies used by Jane Street and impounding ₹4,843 crore (which was paid) – the highest-ever penalty – also made it clear that while the regulator is not against making profits in the market, it will not tolerate manipulation.

Last month, Sebi chairman Tuhin Kanta Pandey upped the ante and made the regulator's position clear. "I know these guys are brilliant mathematicians and PhDs, but we can have PhDs on our side. We are not constrained," Pandey told The Financial Times. Pandey also rejected Jane Street's defence that it engaged in standard index arbitrage. "Manipulation is where you are artificially creating arbitrage," he said.

At the heart of the controversy is the firm's index arbitrage strategy, one that Jane Street insists is standard and legal, but which Sebi believes may have distorted prices in the equity derivatives market.