In one of its most aggressive moves yet, the Securities and Exchange Board of India (Sebi) has taken strong action against US-based high-frequency trading firm Jane Street, uncovering a strategy it called “manipulative” and designed to dodge regulatory oversight. The interim order issued on July 3 has not only rocked Jane Street but also triggered a wave of concern among global HFT firms operating in India through similar structures.

Contents

The Heart of the Controversy: Dual Entities and Regulatory Bypass A Common Practice Now Under Spotlight HFT Firms on Alert: Algorithms Under Review Impact on the Industry: Time to Reassess Structures The Bigger Message: Sebi’s No-Nonsense Approach

The Heart of the Controversy: Dual Entities and Regulatory Bypass

At the center of Sebi’s action is Jane Street’s Indian arm — JSI Investments Pvt Ltd — which the regulator alleges was used to bypass restrictions placed on foreign portfolio investors (FPIs), especially around intraday and derivatives trading. Sebi’s order states:

“It appears that the incorporation of JSI Investments enabled Jane Street to work around the prohibition in FPI Regulations, and execute the manipulative scheme without explicitly violating them.”

What’s more concerning for the industry is that this model isn’t unique to Jane Street. Top global firms like Citadel Securities, IMC Financial Markets, and Jump Trading are known to operate in India through similar dual-entity structures—a domestic trading desk under Indian registration and an FPI arm in tax-efficient jurisdictions like Singapore or Hong Kong.

A Common Practice Now Under Spotlight

These dual setups are designed to leverage the tax arbitrage: while Indian entities pay taxes on derivative profits (10–15%), FPIs from treaty countries like Singapore are exempted. This arrangement, combined with regulatory asymmetries, made India’s booming derivatives market an attractive ground for sophisticated global players.

However, Sebi’s observation—that Jane Street’s Indian and foreign arms were placing opposing trades in the same securities while being under common control—has sparked compliance concerns across the trading world.

While such “contra orders” by separate entities aren’t technically illegal, Sebi emphasized that coordinated execution through algorithms under a single ownership can amount to market manipulation.

“When you have a group structure and shared ownership, even separate legal identities can end up moving markets if they act in sync—intentionally or algorithmically,” explained a person familiar with HFT strategies.

HFT Firms on Alert: Algorithms Under Review

The algorithmic execution of these trades adds to the complexity. More than 99% of trades by these firms are algorithm-driven, often running without real-time human intervention.

“Each algo follows its own code. It’s possible that two entities within the same group take opposite positions, not to game the market, but due to how each model reacts to signals,” said an insider with direct knowledge.

Despite this, Sebi’s broader interpretation of intent and impact has put algo strategies under scrutiny, particularly in illiquid counters where intra-group trading could lead to distortions.

Impact on the Industry: Time to Reassess Structures

Insiders say the fallout from the Jane Street case could be far-reaching. Many brokers and funds may now have to reconfigure their algo systems, and in some cases, rethink their entity structures to avoid regulatory heat.

“Some brokers will now have to rework their algorithms to ensure there’s no overlap or contradiction within the group,” said a market participant.

Though Sebi has not officially named other firms, emails to Citadel, Jump, and IMC remained unanswered. It is also not clear which exact entities may be under the lens.

The Bigger Message: Sebi’s No-Nonsense Approach

With this case, Sebi has made it clear—even the most sophisticated global trading firms are not above scrutiny. The regulator has ordered the impounding of ₹4,843 crore in alleged illegal gains, describing the trading pattern as “manipulative” and “structured to avoid regulatory oversight.”

Legal experts believe the matter may now head to Indian courts, which will likely need to define whether it’s the structure or the intent behind such trading that breaches securities law.