Make $1 billion loss in stock futures to earn $5 billion profit in options: Sebi exposes Jane Street's Baazigar strategy

Time of India

2 days ago

"Kabhi kabhi kuch jeetne ke liye kuch haarna bhi padta hai. Aur haar kar jeetne wale ko baazigar kehte hain!
" That isn't just Shah Rukh Khan's immortal dialogue from the Bollywood thriller 'Baazigar', but also American hedge firm Jane Street's trick to make money in the Indian stock market.
After a year-long investigation into how Jane Street manipulated Indian markets to amass huge profits, markets regulator Sebi found that the firm made profits of Rs 43,289.33 crore (roughly $5 billion) in index and stock options, while deliberately losing a billion dollars - Rs 7,208 crore in stock futures, Rs 191 crore in index futures, and Rs 288 crore in cash equities trading.
The net result: Jane Street made a total profit of more than
Rs 35
,500 crore across all segments during the examination period from January 2023 to March 2025.
Sebi's investigation revealed the staggering scale of Jane Street's operations and the calculated nature of their strategy. Within the index options category, Nifty Bank options alone contributed Rs 17,319.26 crore, amounting to 40% of the total index options profits, making it the crown jewel of Jane Street's manipulation strategy.
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Sebi's detailed analysis reveals the intricate mechanics of what the regulator calls Jane Street's "Intra-day Index Manipulation Strategy." Take January 17, 2024, for example, when Nifty Bank opened sharply lower at 46,573.95 compared to the previous close of 48,125.10, reportedly due to market disappointment with HDFC Bank's results. But Jane Street saw opportunity in the chaos.
In the morning session, Jane Street executed phase one of its strategy with military precision. The firm aggressively purchased Rs 4,370.03 crore worth of Nifty Bank constituent stocks and futures, becoming 'the single largest net buyer across Nifty Bank components during this patch, by far.'
The scale was unprecedented. In all stocks except HDFC Bank, Jane Street 'contributed 15–25% of the entire market's traded value — a remarkably dominant share/concentration.' For perspective, the next highest participant's concentration was only 8.09%, compared to Jane Street's 23.21% in Kotak Mahindra Bank.
But here's the masterstroke: while artificially propping up the index through massive buying, Jane Street simultaneously built 'effectively Rs 32,114.96 crore of bearish positions in the much more liquid Nifty Bank index options by buying cheap Put options and selling expensive Call options.'
The artificial support created perfect conditions for Jane Street to enter options trades at favorable prices, with other market participants misled by the inflated index levels.
Sebi's granular analysis of the first eight minutes (9:15 AM to 9:22 AM) shows the surgical precision of Jane Street's manipulation. During this brief window, the firm purchased Rs 572 crore worth of stocks and futures in six major Nifty Bank components.
The impact was immediate and dramatic. 'The Nifty Bank index moved significantly from 46,573.93 to 47,176.97 during this patch, a rise of over 600 points.' At the same time, Jane Street had created 'effective cash-equivalent short Nifty Bank exposure of Rs 8,751 crore' — over 15 times their Rs 572 crore position in cash and futures.
In the afternoon, Jane Street executed the second phase with equal aggression. The firm 'reversed and dumped the morning's purchases, and net sold Nifty Bank component stocks, stock/index futures to the tune of Rs 5,372.12 crore.'
The result was predictable: 'The resultant downward pressure on Nifty Bank at expiry allowed JS Group to profit immensely from their outstanding net short cash-equivalent positions in the Nifty Bank index options segment.'
Jane Street booked a deliberate trading loss of Rs 61.6 crore in cash and futures but made a profit of Rs 734.93 crore in Nifty Bank index options — a return ratio of nearly 12:1.
Sebi was unequivocal in calling Jane Street's strategy manipulative, stating:
'What sets apart the trading pattern of the JS Group as described above as prima facie being manipulative is the intensity and sheer scale of their intervention in the underlying component stock and futures markets, the rapid reversal of these large and aggressive trades in cash and futures without any plausible economic rationale — other than the concurrent activity in and impact on their positions in the Nifty Bank index options markets.'
The regulator emphasized that 'there is little or no economic rationale to justify such large and aggressive intraday trading activity in stocks and futures on a standalone basis. In fact, given the sheer size, aggression, manner of trading, and transaction costs involved, standalone, such activities could more often than not end with net trading losses.'
The Systematic Pattern
This wasn't a one-off incident. Across 15 analyzed days, Jane Street 'booked a total intraday trading loss of Rs 199.7 crore in their activities in the Nifty Bank constituent cash stocks and futures markets,' while earning profits of Rs 4,474 crore in Nifty Bank index options.
Sebi concluded that the 'demonstrably large and aggressive trading behaviour of JS Group in the Nifty Bank constituent stocks and futures had little standalone economic rationale, other than to manipulate the prices of securities and benchmarks, to mislead, entice, or cause loss to participants in the index options markets.'
Perhaps the most damning evidence was Jane Street's systematic approach to incurring losses. Sebi noted that 'incurring losses in cash and futures markets in a deliberate and systematic manner is itself unusual and indicative of fraud.'
These losses, the regulator found, were 'incurred as part of the manipulative device to influence the benchmark indices and profit from the positions taken in the index options,' making them integral to the scheme rather than legitimate trading losses.
The Verdict
Sebi's investigation revealed a sophisticated manipulation scheme where Jane Street weaponised deliberate losses in some segments to generate exponentially larger profits in others. The strategy represents one of the most complex cases of market manipulation ever documented in Indian financial markets.
The Rs 35,602 crore net profit stands as a stark testimony to the effectiveness of Jane Street's strategy — even as it highlights the vulnerability of Indian markets to highly coordinated, well-funded, and systematically executed manipulation by global players.
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