How Jane Street’s Trades in the Indian Stock Market Led to ₹4,843 Crore in Unlawful Gains
Introduction
In a landmark regulatory action, the Securities and Exchange Board of India (SEBI) barred US-based Jane Street Group, a global proprietary trading firm, from accessing Indian securities markets on July 3, 2025, ordering it to disgorge ₹4,843.57 crore in alleged unlawful gains. SEBI’s 105-page interim order accuses Jane Street of manipulating stock indices, particularly the Bank Nifty and Nifty 50, through sophisticated, high-frequency trading strategies in the derivatives segment. This blog explores how Jane Street allegedly executed these trades, the mechanics of their manipulative strategies, the impact on Indian markets, and the broader implications for retail investors and market integrity as of July 14, 2025.
Who is Jane Street?
Founded in 2000 in New York, Jane Street Group LLC is a secretive, high-frequency trading firm with over 3,000 employees across offices in the US, Europe, and Asia. Operating in 45 countries, it trades a wide range of asset classes, including equities, bonds, and derivatives, using proprietary capital rather than client funds. In India, Jane Street operated through four entities: JSI Investments Pvt Ltd, JSI2 Investments Pvt Ltd, Jane Street Singapore Pte Ltd, and Jane Street Asia Trading Ltd, with the latter two registered as Foreign Portfolio Investors (FPIs). The firm’s advanced algorithms and low-latency trading infrastructure enabled it to execute thousands of trades per second, giving it a significant edge in global markets.
The Alleged Manipulation: How It Worked
Between January 1, 2023, and March 31, 2025, Jane Street reportedly earned ₹43,289.33 crore in profits from index options, with ₹17,319 crore from Bank Nifty options alone, offset by losses of ₹7,208 crore in stock futures, ₹191 crore in index futures, and ₹288 crore in cash equities, netting a total profit of ₹36,502.12 crore. SEBI identified ₹4,843.57 crore of these gains as unlawful, stemming from 21 instances of manipulative trading across 18 sessions (15 Bank Nifty and 3 Nifty 50 expiry days). The strategies, detailed below, were designed to artificially influence index prices for profit.
1. Extended Marking the Close Strategy
Jane Street employed a tactic known as “Extended Marking the Close,” a variation of a prohibited practice where large orders are placed near the end of trading to manipulate closing prices. The strategy unfolded in two phases:
- Morning Phase (Pump): Jane Street aggressively bought large quantities of Bank Nifty and Nifty 50 constituent stocks (e.g., Reliance Industries, HDFC Bank, ICICI Bank, TCS, Infosys, Axis Bank, ITC, Larsen & Toubro, Kotak Mahindra Bank) and their futures, pushing up or supporting index levels. These trades were often executed at or above the last traded price (LTP), creating upward price pressure.
- Afternoon Phase (Dump): Later in the session, typically in the final hours, Jane Street reversed these positions by selling large volumes of the same stocks and futures, exerting downward pressure on the indices. This caused sharp price drops, particularly on expiry days when options contracts settle.
Simultaneously, Jane Street held large options positions:
- Bearish Options: The firm bought cheap put options and sold expensive call options, profiting significantly when the index fell due to their selling pressure.
- Profit Mechanism: Losses in the cash and futures segments were offset by massive gains in options, as the engineered price drops increased the value of their put options. For instance, SEBI noted that on January 17, 2024, Jane Street earned ₹735 crore in a single day using this strategy.
Example: On a Bank Nifty expiry day, Jane Street bought significant quantities of HDFC Bank and ICICI Bank futures in the morning, lifting the index by 1–2%. In the afternoon, it sold these positions, causing a 1.5% drop, while its put options gained value, yielding profits far exceeding the futures losses.
2. Intra-Day Index Manipulation
SEBI described Jane Street’s actions as “intra-day index manipulation,” where the firm’s trades lacked “plausible economic rationale” and were designed to sway market direction. Key characteristics included:
- Non-Neutral Trading: Unlike typical hedging, Jane Street’s trades were unhedged and disproportionately skewed to influence prices. For example, its futures trades were executed to amplify market sentiment, reinforcing spot price movements.
- Expiry-Day Focus: The manipulation was most potent on weekly index options expiry days, when price movements significantly impact options settlements. SEBI observed “abnormally high or low volatility” on these days, with Jane Street’s trades constituting a significant portion of market activity.
- Coordinated Approach: The four Jane Street entities operated as a single group, with FPIs bypassing cash market restrictions by using Indian entities (JSI and JSI2 Investments) to execute trades, circumventing FPI regulations.
3. Ignoring Regulatory Warnings
In February 2025, the National Stock Exchange (NSE), under SEBI’s direction, issued a caution letter to Jane Street, warning against high-risk trading in index options. Jane Street assured compliance but continued manipulative trades, including on May 15, 2025. SEBI criticized this as a “clear disregard” of regulatory warnings, noting that the firm’s actions risked damaging market fairness and investor trust.
SEBI’s Findings and Actions
SEBI’s investigation, sparked by media reports in April 2024 and a US lawsuit where Jane Street accused former employees of stealing proprietary strategies, uncovered a pattern of suspicious trading. The regulator’s 105-page interim order, issued by Whole-Time Member Ananth Narayan, highlighted:
- 21 Instances of Violation: Across 18 trading sessions, Jane Street’s trades distorted prices and settlement outcomes, violating Sections 12A(a), (b), and (c) of the SEBI Act and Regulations 3 and 4 of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP).
- Unlawful Gains: ₹4,843.57 crore was identified as profits from manipulative trades, primarily in Bank Nifty options, out of the total ₹36,502.12 crore net profit.
- Market Impact: The strategy misled retail investors, who faced losses as prices were artificially inflated and then crashed, with 93% of retail traders losing an average of ₹1.25 lakh in FY24, per a SEBI study.
SEBI’s response was swift:
- Market Ban: Jane Street and its entities were barred from trading in Indian securities markets until further notice, effective July 3, 2025.
- Disgorgement Order: The firm was directed to deposit ₹4,843.57 crore into an escrow account with a scheduled commercial bank, with a lien in favor of SEBI.
- Asset Freeze: Banks, depositories, and custodians were instructed to block withdrawals from Jane Street’s accounts, with credits allowed but debits requiring SEBI approval.
- Position Wind-Down: Jane Street was given three months or until contract expiry to close existing positions in a non-disruptive manner.
On July 11, 2025, Jane Street deposited the ₹4,843.5 crore, complying with SEBI’s order, allowing it to resume trading under strict monitoring to prevent further manipulation.
Impact on Indian Markets and Retail Investors
Jane Street’s actions exposed vulnerabilities in India’s derivatives market, the world’s largest by volume, with the NSE accounting for 60% of global equity derivatives trades in April 2025. The manipulation:
- Eroded Trust: Retail investors, already facing a 93% loss rate in options trading, were disproportionately harmed as Jane Street’s trades distorted prices, luring them into unprofitable positions.
- Highlighted Regulatory Gaps: Analysts like Gaurav Goel of Fynocrat Technologies noted that manipulators exploit both cash and options markets to create fake price moves, urging SEBI to develop systems for cross-market surveillance.
- Prompted Reforms: SEBI’s October 2024 circular tightened derivatives trading norms, reducing carry-forward positions to ₹1,500 crore to curb expiry-day volatility.
Posts on X reflect public outrage, with users like @yatinmota and @BahlKanan highlighting how Jane Street “looted” retail traders by manipulating indices, while @ZerodhaVarsity explained the illegality of “Marking the Close.”
Jane Street’s Response
Jane Street disputed SEBI’s findings, calling them a “misunderstanding” of standard hedging practices. In a statement, the firm emphasized its commitment to regulatory compliance globally and indicated it would engage further with SEBI, potentially appealing the order within the 21-day window provided.
Tax Implications
The Indian tax authorities are examining whether Jane Street’s profits, booked in Singapore under the India-Singapore Double Taxation Avoidance Agreement (DTAA), can be taxed in India. Under the General Anti-Avoidance Rule (GAAR), transactions lacking “commercial substance” could be reattributed to Indian entities, potentially taxed at 38.22%. This could lead to additional liabilities beyond the disgorgement.
Broader Implications
SEBI’s action sets a precedent for regulating high-frequency trading and proprietary firms in India. It underscores:
- Market Integrity: The ban reinforces India’s commitment to a fair trading environment, critical as the country expands its global financial market presence.
- Retail Investor Protection: With retail participation in derivatives surging, SEBI’s intervention aims to safeguard small investors from sophisticated manipulation.
- Global Scrutiny: The case, coupled with Jane Street’s 2023 US lawsuit revealing $1 billion in Indian profits, highlights the need for cross-border regulatory cooperation.
Conclusion
Jane Street’s alleged manipulation of the Bank Nifty and Nifty 50 indices, netting ₹4,843.57 crore in unlawful gains, exploited India’s derivatives market through calculated, high-frequency trades. SEBI’s decisive action—banning the firm, impounding funds, and tightening regulations—sends a clear message that market manipulation will not be tolerated. While Jane Street’s deposit of the disgorged amount allows it to resume trading, strict monitoring and potential tax liabilities loom. For retail investors, the saga underscores the risks of derivatives trading and the importance of robust regulatory oversight. As SEBI’s investigation continues, expected to conclude in 6–9 months, the outcome will shape India’s approach to policing its fast-growing financial markets.
Sources:
- LiveMint, July 6, 2025
- The Financial Express, July 4, 2025
- Hindustan Times, July 4, 2025
- News18, July 10, 2025
- NDTV Profit, July 4, 2025
- Moneycontrol, July 13, 2025
- India Today, July 14, 2025
- The Indian Express, July 4, 2025
- Posts on X
Disclaimer: This blog is for informational purposes only and does not constitute financial or investment advice. Always consult a registered financial advisor before making investment decisions. The information is based on SEBI’s interim order and ongoing investigations, which may evolve.
