Street theatre: Sebi pins down Jane Street for manipulation

Mint

15 hours ago

The market regulator on Friday barred four entities of US-headquartered Jane Street Group from accessing the securities market until they deposit alleged illegal gains into an escrow account, rattling shares of capital market-related companies and the broader financial services sector.
In one of the biggest crackdowns in India's equity market, the Securities and Exchange Board of India (Sebi) ordered seizing ₹4,843 crore from the group, one of the most influential players in the global derivatives markets, citing prima facie evidence of index manipulation and fraudulent trading practices.
The Sebi interim order also froze the bank and demat accounts of the four entities, and directed all custodians, banks, depositories, and registrar agents to block any transfers or redemptions involving the entities' assets without its approval.
Fear factor
Capital market-related stocks plunged on fears of a fall in volumes.
Shares of BSE tanked 6.55% to ₹2,635.2 while Nuvama, a trading partner of Jane Street in India, dropped 11.2% to ₹7,310. Angel One, the third-largest retail broking house, plunged 5.9% to ₹2,776. Depository CDSL, a subsidiary of BSE, shed 2.3% to ₹1,762.5. Others like Motilal Oswal Financial Services and Aditya Birla Sun Life MF slipped by 1.3–1.6%.
"Jane Street disputes the findings of the Sebi interim order and will further engage with the regulator. Jane Street is committed to operating in compliance with all regulations in the regions we operate around the world," the group said in a statement to Mint.
The Sebi order cited what it describes as 'prima facie" evidence of two distinct but coordinated manipulation strategies: 'intraday index manipulation" (seen on 15 days) and 'extended marking the close" (seen on 3 days), particularly on index expiry days. A further instance of similar manipulation was recorded on 15 May 2025, in defiance of prior regulatory warnings.
Index manipulation
Sebi said Jane Street exploited expiry-day dynamics in index derivatives. It held large options positions early in the day—typically puts (bearish bets) or calls (bullish bets)—and then moved prices in the cash and futures markets to benefit its options book. On expiry mornings, it would push Bank Nifty up by aggressively buying constituent stocks and futures, only to reverse positions by midday to engineer a fall—boosting the value of its put options.
Across all the 18 days identified by Sebi for investigation within the examination period, Jane Street earned ₹43,289 crore in index options and another ₹900 crore in stock options, while making losses of ₹7,208 crore in stock futures, ₹191 crore in index futures, and ₹288 crore in cash equity. The net profit earned by the group stood at ₹36,502 crore.
On 17 January 2024, Sebi found that Jane Street earned ₹734.93 crore in options, while losing ₹61.6 crore in cash and futures—what Sebi calls the 'cost of manipulation." That day, Bank Nifty opened 3.2% lower, driven by poor earnings from HDFC Bank. Between 9:15 am and 11:47 am, Jane Street purchased ₹4,370 crore worth of Bank Nifty constituent stocks and futures. This pushed the index up, misleading the market. Then, it created ₹32,114.96 crore in bearish positions by buying puts and selling calls. After 11:49 am, it reversed its morning trades, sending the index into a tailspin and locking in massive profits.
Directional trades
In another strategy labelled 'extended marking the close", Jane Street was found to have made aggressive directional trades in the final 30-60 minutes of trading to engineer the index closing level. This was key since settlement prices for options are derived from the day's close.
In a particularly serious instance, on 15 May, 2025—despite receiving a prior caution from the National Stock Exchange (NSE)—the same pattern re-emerged, this time on Nifty expiry. Sebi noted this was a "cynical violation of the caution letter issued to the JS Group on February 6, 2025."
Forensic analysis
The investigation, which began in April 2024 after foreign media reports flagged global litigation involving Jane Street's trading strategies, focused on derivatives expiry-day trades. Forensic analysis of timestamps, order placement vs. last traded price, and gross traded values revealed patterns closely tied to its options exposures. According to Sebi, this indicated a calculated design to manipulate index levels.
Legal experts say the burden now shifts to Sebi to prove manipulative intent.
'Large, aggressive, or even dominant trading strategies are not per se unlawful unless they are deceptive or fraudulent. Sebi's case relies on patterns and price impact rather than direct evidence of deception, which could face scrutiny. This matter could set an important precedent for how Indian law treats complex algorithmic strategies in the derivatives market," said Sumit Agrawal, founder of Regstreet Law Advisors and a former Sebi official.
Agarwal added that if contested, Jane Street could plausibly argue that its trades were part of legitimate algorithmic strategies used for hedging and liquidity provision, not manipulation. 'The trades were executed transparently through the exchange and may have caused market impact due to scale, but impact alone isn't unlawful under Indian securities law", he said.
Major reset
Jayesh H., co-founder of Juris Corp, added, 'While it can appear as one-off, that would be a mistake. If the preliminary assessment turns out to be correct, then there needs to be a major reset and on all sides... Going back in time, the recommendations of L.C. Gupta should be remembered… small retail investors [were] to be kept out."
A Sebi official said on the condition of anonymity that the interim order is not a show cause notice, and it clearly indicates that investigations into Jane Street will continue. "This interim order has only looked at the 18 major days of prima facie Bank Nifty index manipulation on expiry day… Investigations into other expiry days, other indices (including across exchanges), and other potential patterns besides the two highlighted in the order will need to continue."
There should not be any major market impact from this enforcement action, the official added. "In any case, delta-based (future equivalent) limits are now in place in index options to curtail excessive risk taking without impacting regular participants."
Enforcement
Better enforcement of existing regulations can pave the way for optimal regulation, the official said. 'On the flip side, more regulations cannot make up for poor enforcement. We will continue to monitor Indian F&O markets."
The order, authored by Sebi whole-time member Ananth Narayan G, mandated Jane Street to close all open derivative options in three months. Exchanges have been asked to supervise the group's trading, which will commence after it deposits alleged illegal gains.
Market experts appear to have mixed views on the implications of the Sebi action on the US trading firm.
'You've got to hand it to Sebi for going after Jane Street. If the allegations are true, it's blatant market manipulation," said Zerodha founder Nithin Kamath on X.
He added, though, that prop trading firms like Jane Street accounted for nearly 50% of options trading volumes, and if they pulled back—which seems likely—retail activity of around 35% could take a hit. 'So this could be bad news for both exchanges and brokers," Kamath said.
Higher volumes?
However, a UAE-based trader active in Indian markets countered this view, saying volumes could actually rise.
'The impact of the Sebi clampdown on Jane Street's manipulation will only lead to an increase in volumes," said Mayank Bansal, president at a UAE-based hedge fund. 'Many traders stayed out of the Indian markets over the past 12 months, knowing that markets were being rigged massively by Jane Street on expiry day. Now that Jane Street has been barred… the volumes… will actually increase as traders staying out will come back in again."Jane Street is largely a market maker in other markets where it operates. Here, instead of providing two-way liquidity, it was taking large directional exposure via options, and then manipulating the underlying to benefit from them.
NSE's premium turnover in index options—a key metric for active trading—averaged ₹47,836 crore per day in Q1 FY26. That's down 24% year-on-year from ₹63,208 crore, but up 10% from the previous quarter.
The year-on-year fall is attributed to Sebi's tighter rules introduced late last year, which increased the cost to trade and limited weekly option expiries to one per exchange.
BSE holds a little over 20% share of the options market.