SEBI cracks down on Jane Street in landmark derivatives market case

A high-stakes battle has erupted between U.S.-based quantitative trading giant Jane Street Group and the Securities and Exchange Board of India (SEBI), as the regulator accused the firm of manipulating Indian markets using sophisticated trading strategies and imposed its largest-ever market penalty. On July 3, SEBI issued an interim order banning Jane Street from Indian markets and impounding Rs 4,843 crore (approximately $567 million) in what it described as "prima facie unlawful gains" from alleged manipulation in the country’s booming derivatives segment.

In a 105-page order replete with charts and data, SEBI said the firm used its "immense trading, financial and technological prowess" to distort prices in India’s two benchmark indices - Nifty and Bank Nifty - through aggressive high-frequency strategies. The order marks a flashpoint in SEBI’s ongoing efforts to rein in speculative excesses in a market where retail participation has surged and losses have ballooned.

"The JS Group is not a good faith actor that can be, or deserves to be, trusted," said SEBI Whole-Time Member Anant Narayan G. "The integrity of the market and the faith of millions of small investors and traders can no longer be held hostage to the machinations of such an untrustworthy actor."

A Global Player Under Fire

New York-headquartered Jane Street, which operates in 45 countries with over 3,000 employees, earned a net of Rs 36,502 crore over 27 months from trading Indian options, futures, and equities. The firm has denied any wrongdoing and said it is "beyond disappointed" with SEBI’s action, describing the allegations as "extremely inflammatory." Jane Street has 21 days to deposit the impounded sum and intends to challenge the order in court.

The regulator’s action comes amid a sharp rise in retail investor losses — over Rs 1.01 lakh crore in India’s derivatives markets, now the largest globally by volume. According to SEBI, most novice traders suffer losses, particularly in options, where leverage of up to 100 times the invested amount is allowed. A recent study found that nine out of 10 options buyers lost money.

Whistleblower Claims ‘Full Profit is Illegal’

The crackdown was triggered by whistleblower Mayank Bansal, one of India’s top options traders, who alleged that Jane Street had made the entire ₹36,502 crore profit illegally. Bansal, who now runs a hedge fund in Dubai, told Business Today, "SEBI should impound it all and, on top of it, impose a huge fine with criminal proceedings."

According to Bansal and SEBI’s findings, Jane Street manipulated intra-day index movements by deploying billions of dollars to steer the Bank Nifty index in directions that favoured its options positions. On January 17, 2024 — a key weekly expiry day — Jane allegedly profited nearly Rs 735 crore through coordinated buying and selling of shares, futures, and options.

While trading across market segments is not inherently illegal, SEBI stated that Jane’s trades accounted for 15–25% of all volumes in the 12 stocks comprising the Bank Nifty. The scale and aggressiveness of these trades, it said, went beyond permissible arbitrage strategies.

Jane Street, for its part, maintains it was engaging in "index arbitrage" and not manipulation.

Delayed Action, Deep Repercussions

While SEBI’s move has been widely welcomed, questions have been raised about the delay in its response. The regulator had previously warned Jane Street, via the National Stock Exchange, in early 2025 to desist from questionable strategies. Although the firm agreed to comply, SEBI now alleges that it continued to violate Indian securities laws.

Critics say the firm exploited India’s regulatory arbitrage — operating with a level of impunity it would not have dared attempt on Wall Street. "Many western hedge funds take Indian regulators lightly," Bansal said.

The order is based on just 18 trading days, a small subset of the roughly 500 expiry sessions Jane Street is believed to have participated in. Analysts say the total penalties could soar if SEBI’s investigation widens.

Market Impact and the Road Ahead

SEBI’s unprecedented action has sent ripples through India’s derivatives market. Retail trading volumes in options have reportedly fallen by 20–30%, a trend the regulator had long hoped to catalyse through formal policy changes.

Meanwhile, institutional traders who had mirrored Jane Street’s strategies are now on the sidelines, wary of potential scrutiny.

With litigation imminent and broader investigations likely, the coming months will see intensifying friction between a global trading powerhouse and a domestic regulator determined to protect market integrity.

As one analyst put it: "This is no longer just about a fine — it’s about setting the rules of engagement between foreign capital and India’s financial markets."