📰India Bans Jane Street.

Good afternoon, 

Happy 4th of July! Jane Street once boasted of making most of its profits in India, but now it has been banned from trading stocks in the country.

We’ll discuss more, and then close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

Jane Street Faces Ban and Fees in India.

India’s SEBI has effectively barred Jane Street, a global prop trading firm, from trading on domestic exchanges, citing regulatory breaches and “excessive opacity” in the firm’s proprietary high-frequency strategies. The ban, quietly implemented late last week, marks the first time a major global algorithmic trading house has been ejected from India’s capital markets, and could reshape how the country balances foreign capital, technological edge, and market stability.

What triggered the ban? Sources within SEBI say the decision followed an 18-month investigation into anomalous trading patterns across multiple segments, cash equities, index derivatives, and currency futures. Jane Street, one of the world’s most successful proprietary trading firms, was flagged for order spoofing, wash trades, and systematic front-running that allegedly exploited latency advantages over local brokers.

At the core of SEBI’s findings was a complex web of co-location servers and dark fiber connections. India’s NSE and BSE have offered co-location services since 2010, allowing sophisticated players to house servers physically close to exchange engines. While not illegal in itself, SEBI’s surveillance team found evidence that Jane Street’s Indian subsidiary, nominally ring-fenced from its offshore arms, used cross-border data feeds and co-located nodes to re-sequence orders faster than domestic brokers could react. A forensic audit reportedly revealed that Jane Street’s average order-to-trade ratio exceeded 3,500:1 on some days, far above the market average of 150:1, an indicator of excessive quote stuffing intended to probe market depth and manipulate bid-ask spreads. 

In 2023, SEBI introduced rules requiring all algorithmic trading participants to submit detailed strategy documentation, including risk controls and kill-switch protocols. Jane Street, pushed back, arguing the proprietary nature of its algorithms made full disclosure commercially unviable. Recently, Jane Street was in a legal battle with Millennium about an Indian trading strategy that was market manipulation by introducing volume at the end of a trading day to benefit existing positions. That certainly did not help with SEBI’s already negative view. 

Why does this matter now? Jane Street’s ban is not just a tale of one firm’s regulatory overreach; it raises broader questions about India’s uneasy relationship with high-frequency trading. The firm (known for being notoriously secretive, just ask SBF) accounted for an estimated 4–6 percent of daily cash market volumes on the NSE. Its exit will create a vacuum that could tighten spreads, reduce liquidity at the margins, and dent exchange revenues in the short run.

Ironically, India was once a poster child for how emerging markets could leverage HFT to deepen market efficiency. Over the last decade, algorithmic trading’s share of cash equities volumes climbed from less than 10 percent to over 50 percent by 2024. Domestic brokers like Zerodha and IIFL have embraced low-latency systems while foreign quant shops like Jane Street, Tower Research, and Hudson River Trading have brought technological sophistication and cross-border liquidity.

Yet, this influx came with familiar headaches. Surveillance data routinely shows spikes in intraday volatility during expiry weeks. Local fund managers have long accused offshore algos of predatory tactics that front-run large orders placed by pension funds and retail wealth managers. Regulators now appear more willing to act decisively, driven by a political climate that favors market stability over unrestricted foreign access.

What's next for the industry? While Jane Street’s lawyers are preparing to challenge SEBI’s order in India’s appellate tribunal for securities, the likelihood of a quick reversal appears slim. Keep in mind how long court cases take to resolve in the country. Political sentiment favors homegrown brokers and retail investors, and no major party wants to be seen rolling out the red carpet for foreign trading firms. 

Industry insiders suggest that other global prop shops, including Citadel, RenTech, and Two Sigma, are now reviewing their India operations. Some are considering creating locally incorporated JVs to comply with onshore server and data residency requirements. Others may scale back or redirect efforts to Singapore or Dubai, where regulatory regimes remain more permissive, but those localities offer sparse trading opportunities compared to India’s deeper market. 

And India? In the bigger picture, Jane Street’s ban also fits into a wider pattern of India tightening its grip on financial flows it deems too disruptive or opaque. Last year, SEBI unveiled new guardrails on participatory notes and beneficial ownership reporting, aiming to choke off round-tripping. Separately, the RBI cracked down on offshore FX derivatives trading that it argued was distorting rupee volatility.

The common thread is clear: while India remains keen on attracting capital, it wants that capital to flow through transparent, well-regulated channels. Jane Street’s refusal to share source code or fully localize its infrastructure struck directly at that principle. While Jane Street’s strategies provided liquidity in less-traded index futures and mid-cap stocks, they also introduced bursts of quote updates that vanished faster than traditional orders could match. Without these strategies, bid-ask spreads could widen marginally in niche segments, potentially raising execution costs for active traders.

That said, some domestic brokers argue this is a fair trade-off. By reducing the share of ultra-fast flows, regulators hope to level the playing field for brokers without cutting-edge infrastructure or multimillion-dollar fiber lines. Over time, SEBI wants to tilt incentives toward longer holding periods, more stable flows, and transparent institutional pools rather than opaque dark pools and pinging orders.

For other emerging markets, India’s crackdown offers a cautionary tale: high-frequency trading can be a double-edged sword, deepening liquidity but also testing regulatory capacity to its limits. How India navigates this tension will be closely watched, not just in Hong Kong and Singapore, but in every market where lightning-fast strategies intersect with slower-moving policy frameworks.

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Gupshup.

Macro

• India is pushing to finalize a US trade deal before the July 9 tariff deadline, but is also threatening retaliatory tariffs on US goods if higher US duties on autos stay, with Trade Minister Piyush Goyal stressing any deal must be “win-win.” New Delhi wants sectoral access and fair terms as it toughens its stance while talks continue.

• PM Modi is using his five-nation tour to reaffirm India’s leadership ambitions for the Global South ahead of the BRICS summit. He is showcasing India’s economic rise and tech progress while seeking critical minerals deals to reduce reliance on China.

• A comprehensive trade deal with the US could nearly double India’s goods exports to its largest market within a decade. The agreement would boost India’s GDP and manufacturing, but failure to reach a deal could cut exports by a third and hurt growth.

• Early and widespread monsoon rains in India have boosted hopes for a record grain harvest this year by accelerating sowing of rice, oilseeds, and pulses. Officials say fertilizer and seed supplies are adequate, while crop diversification and support prices aim to stabilize supplies and farmer incomes.

• India’s local-currency corporate bond boom is expected to slow after record issuance this year, as the central bank signals limited room for more rate cuts. Companies had rushed to lock in low borrowing costs, but rising yields and a policy shift may moderate fundraising in the coming months.

Equities

• Renault is seeking a new India partner, holding early talks with JSW Group, as it prepares to buy out Nissan’s stake in their Chennai factory. The move aligns with Renault’s plan to expand in India and sell 500,000 vehicles a year by 2030.

• Suzuki has become Japan’s top car importer in June, surpassing Mercedes-Benz, driven by surging demand for its India-assembled Jimny Nomad and other small SUVs. The success highlights Japanese consumers’ growing acceptance of affordable, India-made vehicles amid rising imports from Suzuki and Honda.

• Tata Steel has received a $222 million (₹19 billion) demand notice from Odisha for a shortfall in mineral dispatch from its Sukinda Chromite Block. The company disputes the claim, calling the state's demand unjustified and lacking a substantive basis.

• Yum Brands is reportedly in talks to merge its Indian franchise partners Devyani International and Sapphire Foods to consolidate operations. The potential deal comes as fast food chains in India face slower sales growth and margin pressure amid high living costs.

Alts

• Bank lending in India may not rise significantly despite the large liquidity surplus, J.P. Morgan economists say. They argue that while surplus liquidity helps lower overnight rates, it doesn’t meaningfully boost overall credit or deposit growth.

• India’s aviation regulator reprimanded Air India Express in March for delaying mandatory Airbus A320 engine part replacements and falsifying records to show compliance. The budget carrier, owned by Tata, says it has since taken corrective action and suspended a manager, as regulators continue probes following the recent Dreamliner crash.

• A senior Indian minister has backed the Dalai Lama’s authority to choose his own successor, rejecting China’s claim to that role. The comment highlights India’s support for religious freedom and comes as Beijing maintains it has the right to approve the next Tibetan spiritual leader.

Policy

• Indian insurers want the regulator to revamp bond valuation rules to value each bond individually rather than using a uniform matrix approach. They argue this would better reflect real market conditions and protect investors, but experts warn it could also risk overvaluing illiquid bonds.

• India’s booming options market has attracted millions of retail traders but is now facing a regulatory crackdown over risks of manipulation and huge retail losses. SEBI’s measures, including limits on weekly options and higher margins, aim to cool speculative excesses after allegations like Jane Street’s manipulation case.

• India’s central bank will withdraw $11.7 billion (₹1 trillion) from the banking system to address excess liquidity that has pushed overnight borrowing rates below its policy rate. The move aims to align short-term rates with the benchmark and maintain effective monetary policy control.

• India plans to launch a $234 million (₹20 billion) incentive program to boost local production of civil and military drones and reduce reliance on imports. The move comes after a recent clash with Pakistan highlighted a growing drone arms race in the region, fueled by Islamabad’s ties with China and Turkey.

• The RBI’s careful liquidity withdrawals are expected to keep overnight interbank rates within its policy corridor, supporting policy transmission. Analysts say this approach follows the RBI’s recent rate cut and shift to a neutral stance, aiming to align short-term borrowing costs with its benchmark rates.

See you Monday.

Written by Eshaan Chanda & Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.