Regulating the Unseen: Dark Liquidity, Algorithmic Trading, and the Limits of SEBI's Disclosure Regime

Abstract

Indian securities law does not recognise the dark pool as a category of trading venue: pre-trade transparency is mandated on every recognised exchange, and off-exchange crossing networks of the kind permitted under United States Regulation ATS or the European Union's MiFID II framework have no domestic equivalent. This article argues that the absence of a formal dark-pool category has obscured a functional equivalent that has grown inside India's own algorithmic trading ecosystem. Individual orders placed through broker-provided Application Programming Interfaces are visible on the exchange tape at the moment of execution, but the strategy that connects those orders across time, product segments and counter-parties is not disclosed to the regulator in real time. The result is a form of dark liquidity created not by a hidden venue but by an undisclosed pattern: information asymmetry that arises after the fact rather than before it. The interim order passed by the Securities and Exchange Board of India against Jane Street Group in July 2025 is used as a case study. SEBI's own account of that matter shows that the manipulative pattern it eventually found was reconstructed from two and a half years of trading logs across the cash, futures and options segments, and was not apparent from either the exchange tape or the disclosures available under SEBI's February 2025 circular on safer participation of retail investors in algorithmic trading. Using doctrinal analysis of the February 2025 circular, the exchange operational circulars issued under it, and the Jane Street interim order, the article contends that India's algo-trading framework regulates the messenger, namely the broker and the Application Programming Interface, but not the message, namely the cross-segment strategy itself. It draws a comparison with the volume-based transparency thresholds used for dark pools under MiFID II and argues for a strategy-level, cross-segment audit trail obligation, tied to the existing unique Algo ID architecture, as a proportionate means of closing the gap without displacing the principal-agent structure SEBI has already built.