Enhanced Surveillance over Derivatives: Announcement by Tuhin Kanta Pandey (Sebi)
The Securities and Exchange Board of India (SEBI) has announced a series of intensified measures to strengthen surveillance in the derivatives market, following its decisive action against U.S.-based trading firm Jane Street. The firm was found guilty of manipulating the Bank Nifty index through coordinated trades in cash, futures, and options segments.
SEBI's new measures aim to safeguard market fairness and restore investor confidence, which has been shaken by manipulation fears. The regulator plans to widen its probe beyond Jane Street’s trades on specific exchanges to include other indices and market participants, demonstrating a systemic approach to curbing market abuse.
Key details of SEBI's intensified measures include:
1. Increased Monitoring and Real-Time Surveillance: SEBI is stepping up its real-time trade surveillance capabilities across exchanges to detect manipulation early, especially around key expiry dates when trading volumes surge.
2. Algorithmic Audits and Forensic Probes: Following the Jane Street case, SEBI is conducting deeper forensic investigations into trading patterns and auditing algorithmic trading strategies to prevent exploitative behavior.
3. Position Limits Implementation: To curb excessive market influence by single players, SEBI has imposed position limits capping traders' exposure to ₹1,500 crore, restricting the ability to manipulate indices through large concentrated bets.
4. Market Structural Reforms: The regulator has introduced structural changes including reducing the number of expiry dates for some derivative contracts and increasing lot sizes, making speculative trading more expensive and less attractive.
5. Broadening Investigations: SEBI plans to investigate other indices and market participants, not just Jane Street’s trades on specific exchanges.
6. Focus on Market Integrity and Retail Protection: As India is currently the world’s largest equity derivatives market, representing nearly 60% of global equity derivatives volume, with both institutional and rising retail participation, the new measures aim to safeguard market fairness and protect retail investors.
7. Encouraging Transparent and Ethical Trading: The crackdown is seen as a watershed moment, creating opportunities for transparent brokers and RegTech firms that emphasize compliance and ethical market-making practices.
Tuhin Kanta Pandey, SEBI Chairman, confirmed that the recent action against Jane Street was a surveillance matter. He emphasized that while such manipulation cases like Jane Street's are not widespread, the regulator is committed to continued vigilance to close any loopholes and uphold the market’s integrity.
It is important to note that these intensified surveillance steps mark a significant tightening of oversight in India's rapidly growing derivatives space, addressing vulnerabilities exposed by the Jane Street scandal and aiming to make the derivatives market more robust and transparent going forward.
Jane Street disputes the findings of the SEBI Interim Order and plans to engage with the regulator further. Tuhin Kanta Pandey stated that SEBI possesses all necessary powers to investigate and act against fraudulent practices, as emphasized by him. He also reiterated that people have the right to challenge regulatory actions in a democratic world.
These developments underscore SEBI's commitment to maintaining a fair, transparent, and robust derivatives market in India.
- SEBI's chairman, Tuhin Kanta Pandey, confirmed that the intensified measures are aimed at strengthening surveillance and ensuring market fairness, particularly in the derivatives market.
- To prevent market manipulation, SEBI is increasing real-time trade surveillance, conducting algorithmic audits, and implementing position limits that cap traders' exposure.
- The regulator plans to broaden its investigations beyond a single firm, as it aims to scrutinize other indices and market participants for potential manipulation.
- As the world's largest equity derivatives market, SEBI is focusing on market integrity and retail protection, while encouraging transparent and ethical trading practices.
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