Sebi's Jane Street interim order made India's stock market sit up for good reason
Last week, after a long probe, it barred Jane Street's four trading arms from transacting in the Indian securities markets till it completes its 'detailed' investigation. The capital market regulator has also sought to disgorge ₹4,844 crore from the securities firm. Sebi's order alleges that Jane Street's associate arms indulged in market manipulation—specifically of Bank Nifty index derivatives and this index's constituent shares in the cash segment.
Also Read: Mint Explainer: How Sebi sniffed out Jane Street's market manipulations
Jane Street allegedly ignored a February advisory from the first-level regulator, National Stock Exchange (NSE), leading Sebi to comment in its order that it is not 'a good faith actor that can be, or deserves to be, trusted." The whole affair not only raises many questions, but points to some macro issues as well.
The first question arises from the way in which Sebi chanced upon Jane Street's alleged misconduct. Media reports in April 2024 detailed how Jane Street had sued two former employees in a Manhattan court for allegedly using the firm's 'proprietary trading strategy' in their new firm. The lawyers of the accused revealed in court that the strategy was being deployed in India.
This reportage alerted Sebi, which then began its initial probe into Jane Street's trades in the Indian market's cash and derivative segments, which included directing NSE to keep a close watch on the firm's trading patterns. While Sebi must be lauded for its alacrity and the time it took to marshal and establish the facts of this case—from April 2024 to July 2025—a question could be raised about its source of information.
To be fair, Sebi can always respond to alerts of any viable origin. However, Jane Street's trading strategy was at work for more than a year before April 2024, having flown below Sebi's vigilance and surveillance radars. Thereby hangs a lesson.
Also Read: Street theatre: Sebi pins down Jane Street for manipulation
Another issue that should be debated is whether Jane Street's trading strategy was illegal—or 'manipulation" as per the Indian regulator's interim order. Many F&O traders have adopted similar strategies in the past and escaped scrutiny. Jane Street's large volumes in a shallow market made the difference; but then, can the securities firm be blamed for structural deficiencies in our derivatives market?
What's more important, though, is the fact that Jane Street allegedly profited on the back of uninformed derivatives trading by retail investors.
Sebi's September 2024 report had stated that over 90% of retail investors in the F&O market had incurred losses between 2021-22 and 2023-24. This then calls for a larger investigation into whether retail investors were led up the garden path and if the entities that operated as pied pipers were acting on behalf of Jane Street.
Also Read: F&O action: Can new Sebi rules tame wild bulls of the derivatives market?
Sebi's F&O risk mitigation strategy, which has included raising the bar for futures and options trading, may need some course correction. The regulator must ensure that the bar is raised sufficiently to deter non-institutional investors from treating the derivatives segment of the market like a casino without a cover charge.
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