SEBI bans Jane Street over ₹4,843 crore ‘unlawful earnings'
JSI Investments, JSI2 Investments, Jane Street Singapore, and Jane Street Asia Trading, all part of the Jane Street Group, manipulated Bank Nifty — the index which has 12 bank stocks — and unlawfully gained a total of ₹4,843.6 crore, according to SEBI.
'JS Group first aggressively bought significant quantities of Bank Nifty underlying constituent stocks and futures, temporarily pushing up or lending considerable support to the Bank Nifty index. In the second patch of the day, as has again been demonstrated by data and analysis, J.S. Group was seen to practically and effectively reverse all of this buying activity from the first patch, by aggressively selling large quantities of Bank Nifty underlying constituent stocks and futures,' SEBI's whole time member G. Ananth Narayan said in his order on Thursday.
Explaining the modus operandi of the violation in granular detail and backed by data, the capital markets regulator said it found that the Jane Street Group was 'aggressively buying ₹4,370.03 crore of Bank Nifty stocks and futures.' This was also a sizeable part of the total transaction of the market. The purchase took place on a day when the index was falling, raising suspicions.
The action escalated the prices of Bank Nifty stocks and effectively the index, SEBI said in the order.
While small investors were misled by this trade, Jane Street built trades of ₹32,114.96 crore of bearish positions in the more-liquid Bank Nifty index options. It bought cheap put options and sold expensive call options, SEBI said.
The group then reversed and sold all future positions that it had taken, booking losses. This aggressive selling pushed prices down. The loss was compensated by the profit Jane Street had booked in the positions it had taken in Bank Nifty index options, the regulator said.
'It appears that the incorporation of the aforesaid company in India enabled the J.S. Group to get around the regulatory prohibition against cash market transactions, which solely applied to FPIs, and thereby execute the manipulative scheme without specifically flouting the FPI regulations,' Mr. Narayan wrote.
SEBI ordered that the group open an escrow account in a scheduled commercial bank to transfer the money unlawfully earned, and directed banks, depositories and other market institutions not to make debits in the accounts of Jane Street without its permission.
The group's entities have been given 21 days from the receipt of the circular to respond.
Experts say the order will reshape derivatives market and may bring in some relook at there regulations governing them.
'SEBI may introduce stricter position limits to curb excessive control by single entities, as seen in Jane Street's large-scale trades, or implement real-time monitoring systems to detect manipulative patterns like 'Intra-day Index Manipulation.' Tighter margin requirements could be enforced to discourage high-frequency, speculative trading that distorts prices. Additionally, SEBI might mandate enhanced disclosures for proprietary trading firms to ensure transparency in their strategies, reducing the risk of artificial price movements. Circuit breakers or volatility controls could be refined to limit extreme price swings caused by coordinated trades, protecting retail investors from sudden losses. These reforms, prompted by the need to address manipulation that misleads investors and erodes market trust, could increase compliance costs for firms but foster a more stable, equitable derivatives market, prioritising investor confidence and long-term market integrity,' said Sonam Chandwani, managing partner at KS Legal & Associates.
'While some rail guards are needed as regards HFT (High frequency trading) and Algo Trading, one hopes that a nuanced approach continues to be adopted as regards continuing to permit HFT and Algo trading,' said Jayesh H, co-founder of Juris Corp.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
23 minutes ago
- Time of India
'Marking the close' explained in 5 points: Trick inside Jane Street's alleged manipulation playbook
Jane Street Group LLC, a US-based global proprietary trading powerhouse, which allegedly manipulated the Indian derivatives market, employed a strategy called 'Marking the close' on the Nifty index options. Here is a 5-point explainer on how this strategy works and why it is illegal: 1) Any option contract has an underlying stock, and its premium moves with the price of the underlying stock. For Instance, HDFC Bank's CALL option premium will rise if the stock price of HDFC Bank rises while its PUT option premium will rise with a fall in its price. 2) The logic can be extended to the index options, too. For instance, if the Nifty index moves higher, then the Nifty CALL option premium increases and the same is the case with the Bank Nifty. For index options, the underlying is the index itself, which in turn is a basket of stocks. 3) How Options premiums work Option premiums are calculated based on stock/index's current price vis-a-vis the strike price. Strike price is the price at which you exercise the option. So Premiums are high when they are at-the-money or in-the-money. -- In-the-money (ITM) call option: Current price is higher than strike price -- In-the-money put option - Current price is lower than strike price -- At-the-money (ATM) call/put option: Current price is close to strike price 4) On expiry days, OTM (Out of the Money) options are cheap because they are likely to expire worthless. ATM options are most volatile because they near the strike price and anything can happen. But for ITM options, they are fully loaded and available at a premium. Read More: Sebi may widen Jane Street probe to other indices, exchanges: Report For an options trader, the catch lies in the transition of premiums if he can buy a cheap OTM option for 50 paisa or a rupee and then watch it grow to Rs 10, 20 or even 100 in a matter of a few hours. Traders with deep pockets can make this possible and Jane Street's deep pockets seem to have that kind of money. 5) On the expiry day, you buy all the cheap Index OTM options on one hand and on the other hand, you either buy or sell the index underlying constituents to an extent where the options start to move in your favor. Sophisticated traders can do it by just buying or selling heavyweight stocks of the index. Traders can buy all the cheap options before 3 pm and after that, they can accordingly make orders worth crores of rupees in the heavyweight stocks. It can be done through algorithms which know the exact quantity, price and time, which makes computation of the expiry closing price easy, as the closing price is the weighted average of the last 30 minutes. The algorithms know the closing price which in turn makes your position favourable. Also Read: Jane Street Fallout: Zerodha's Nithin Kamath flags risk to brokers and stock exchanges Why is it illegal? Market regulator Sebi holds this as an unfair, deceptive, and manipulative practice that violates its norms. Sebi's 105-page order holds that Jane Street made unlawful gains through this. Jane Street has refuted these allegations and has said that it will engage with the regulators. ( Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Economic Times
24 minutes ago
- Economic Times
'Marking the close' explained in 5 points: Trick inside Jane Street's alleged manipulation playbook
TIL Creatives Jane Street used expiry-day stock moves to shift index options premiums, exploiting algorithmic trades to manipulate prices and gain an unfair edge in Indian markets. Jane Street Group LLC, a US-based global proprietary trading powerhouse, which allegedly manipulated the Indian derivatives market, employed a strategy called 'Marking the close' on the Nifty index options. 1) Any option contract has an underlying stock, and its premium moves with the price of the underlying stock. For Instance, HDFC Bank's CALL option premium will rise if the stock price of HDFC Bank rises while its PUT option premium will rise with a fall in its price. 2) The logic can be extended to the index options, too. For instance, if the Nifty index moves higher, then the Nifty CALL option premium increases and the same is the case with the Bank Nifty. For index options, the underlying is the index itself, which in turn is a basket of stocks. 3) How Options premiums work Option premiums are calculated based on stock/index's current price vis-a-vis the strike price. Strike price is the price at which you exercise the option. So Premiums are high when they are at-the-money or in-the-money. -- In-the-money (ITM) call option: Current price is higher than strike price -- In-the-money put option - Current price is lower than strike price -- At-the-money (ATM) call/put option: Current price is close to strike price 4) On expiry days, OTM (Out of the Money) options are cheap because they are likely to expire worthless. ATM options are most volatile because they near the strike price and anything can happen. But for ITM options, they are fully loaded and available at a premium. Read More: Sebi may widen Jane Street probe to other indices, exchanges: Report For an options trader, the catch lies in the transition of premiums if he can buy a cheap OTM option for 50 paisa or a rupee and then watch it grow to Rs 10, 20 or even 100 in a matter of a few hours. Traders with deep pockets can make this possible and Jane Street's deep pockets seem to have that kind of money. 5) On the expiry day, you buy all the cheap Index OTM options on one hand and on the other hand, you either buy or sell the index underlying constituents to an extent where the options start to move in your favor. Sophisticated traders can do it by just buying or selling heavyweight stocks of the index. Traders can buy all the cheap options before 3 pm and after that, they can accordingly make orders worth crores of rupees in the heavyweight can be done through algorithms which know the exact quantity, price and time, which makes computation of the expiry closing price easy, as the closing price is the weighted average of the last 30 algorithms know the closing price which in turn makes your position favourable. Also Read: Jane Street Fallout: Zerodha's Nithin Kamath flags risk to brokers and stock exchanges Market regulator Sebi holds this as an unfair, deceptive, and manipulative practice that violates its 105-page order holds that Jane Street made unlawful gains through this. Jane Street has refuted these allegations and has said that it will engage with the regulators. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
The Print
37 minutes ago
- The Print
Sebi probe in Jane Street not over, will focus on other indices, exchanges, patterns
The sources, however, did not give any timeline on how long would the investigation take, and added that 'scope (of investigation) is quite large'. Stating that Sebi has only gone into 18 days of prima facie Banknifty and three days of Nifty index manipulations on expiry days till now, the sources said the probe will now focus on other expiry days, other indices including trades on other exchanges and other potential patterns. Mumbai, Jul 4 (PTI) Capital markets regulator Sebi's investigations into the Jane Street matter are set to continue even after the interim order, sources said on Friday. In an order released in the early hours of Friday, the market regulator has found Jane Street, a New York-based hedge fund, guilty of manipulating the indices by taking bets in the cash, and, futures and options markets simultaneously for making handsome gains. It has suspended the hedge fund from accessing the market and impounded over Rs 4,843 crore in gains. The probe has found that JS made a profit of Rs 36,671 crore on a net basis during the probe period from January 2023-May 2025. The Sebi sources seemed to be pitching for avoiding a reaction where the revelations lead to more regulations and instead pitched for better enforcement. 'Better enforcement of existing regulations can in fact pave the way for optimal regulation. On the flip side, more regulations cannot make up for poor enforcement,' they said. The regulator will continue to monitor the futures and options space from the perspective of ensuring investor protection, market stability, and support for sustained capital formation, the sources said. Sebi actions on the derivatives space following studies pointing to higher losses suffered by retail investors have 'somewhat moderated' retail activity on expiry days, 90 per cent of the trades continue to lead to losses, they said. 'There appears to be still too much of concentration in short-term expiries and short-term trading. Extending maturities and nudging more long-term trading, hedging, and investments would be ideal for our ecosystem,' they said. Even though the stocks of brokerages like Nuvama and Angel One, and also the equity bourse BSE witnessed an impact on Friday, the sources said they do not expect any major impact of this enforcement action. They explained that the revised rules set in recently on the delta-based (future equivalent) limits are now in place in index options to curtail excessive risk taking without impacting regular participants. 'In the long run, the growth in market confidence, and a free and fair market, should aid responsible investing and capital formation,' they said. Ahead of what is expected to be a protracted legal tussle, the Sebi sources also made it clear that every user of an algorithm is responsible for the output of the algo. PTI AA HVA This report is auto-generated from PTI news service. ThePrint holds no responsibility for its content.
