INSUBCONTINENT EXCLUSIVE:
The Securities and Exchange Board of India (Sebi) has barred New-York based trading firm Jane Street from the securities market for
allegedly manipulating stock indices through large derivative positions mostly on the Bank Nifty, leading to losses for retail investors
caught on the other side of these trades
In one of the toughest punitive actions against an international trader of this size, Sebi has ordered the seizure of what it said were
"illegal gains" made by the company to the tune of ?4,844 crore ($570 million)
This is likely the largest amount thus impounded by the regulator till date
Four entities tied to Jane Street Group (JS Group)-JSI Investments, JSI2 Investments, Jane Street Singapore and Jane Street Asia Trading
-have been prohibited from dealing in securities, directly or indirectly
Jane Street has 21 days to file a response."JS Group is not a good faith actor that can be, or deserves to be, trusted," Sebi whole-time
member Ananth Narayan said in his 105-page, ex-parte, interim order issued on July 3
"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."
Live EventsThe firm disputed the findings of the Sebi interim order and said it will engage with the
"Jane Street is committed to operating in compliance with all regulations in the regions we operate around the world," the company
spokesperson said in an emailed response.The regulator examined Jane Street's trades in India between January 1, 2023, and March 31, 2025
During this period, it made over ?43,289 crore ($5.07 billion) profit in index options and ?7,687 crore ($900 million) in losses across
stock futures, index futures and cash markets on the NSE.Founded in New York in 2000, Jane Street is a prominent quantitative trading firm
with offices in all the key financial centres of the world
It uses complex algorithms developed in-house to execute high-frequency trades
The regulator's finding is that the NSE's Bank Nifty Index -comprising the stocks of India's top dozen lenders-had prima facie been
manipulated in a complex and illegal manner aided by the JS Group's immense trading, financial and technological prowess
Jane Street would drive up prices with heavy buying in the morning and send them down through a selling spree later in the day, according to
It also sought to push index levels down with heavy sell orders close to the option expiry, the regulator said.Sebi found that the Bank
Nifty options alone contributed Rs 17,319 crore, amounting to 40% of the total index option's profits."This is an unusual case where prima
facie, multiple liquid stocks with high retail participation have together been manipulated to facilitate the manipulation of the index
options market, resulting in massive profits for the manipulators, at the cost of other participants and retail traders," Sebi said
A detailed investigation is still underway
It would cover other major stock indexes including NSE's Nifty
"It is important to note, however, that this examination has so far been limited to select high-profit expiry days in the Bank Nifty index
There may exist similar patterns in other indices or trading behaviours reflecting alternate strategies which have not yet been analysed
Accordingly, many more trading days may merit detailed investigation to assess the full scope and recurrence of such conduct," Sebi said in
The regulator found at least 15 instances of the JS Group undertaking large and aggressive trades in the underlying Bank Nifty component
stocks and futures that wasn't for investment or for any standalone economic rationale
In fact, it said, given the sheer size and aggressive nature of the intervention in cash and futures markets and the immediate reversal the
same day, the standalone trades in the cash and futures were more likely to end up showing a large net loss."These trades were undertaken
only to distort Bank Nifty index option prices in the interim and entice market participants in Bank Nifty index options to trade at such
distorted levels, while the JS Group would take advantage of this and run much larger opposite side positions in the index options market,"
Jane Street, in an August 30, 2024, letter to Sebi, had argued that these trades were to "remove unwanted delta" or to "manage overall
delta." The regulator didn't accept these statements
"JS Group was undertaking an intentional, well-planned, and sinister scheme and artifice to manipulate cash and futures markets and hence
manipulate the Bank Nifty index level, to entice small investors to trade at unfavourable and misleading prices, and to the advantage of the
The regulator alleged that the Jane Street Group appeared to be most active on expiry days of index options
Sebi said that by incorporating entities in India, JS Group also managed to "work around" foreign portfolio investor (FPI) regulations that
prohibit such overseas entities from undertaking intraday cash market transactions
"Thereby (Jane Street executed) the manipulative scheme without specifically flouting the FPI regulations," it said
Out of the 11,219 FPIs registered with Sebi as of March 31, 2024, only 2.5% are engaged in algorithmic trading, as per regulatory data
JS Group is part of this short-term, algorithmic trading community.The aggressive dumping of Bank Nifty component stocks and futures in
sharp reversal of the heavy pumping purchases done in the morning was immensely profitable for the large Bank Nifty option positions being
run by the JS Group, and to the detriment of all those that had traded in the morning against JS Group at artificially boosted prices, Sebi
This was a classic case of "marking-the-close," where an entity with huge options exposures that are expiring shortly, is moving the
underlying market aggressively in its favour, Sebi said.Nithin Kamath, the founder of discount broker Zerodha, posted on X: "You've got to
hand it to Sebi for going after Jane Street
If the allegations are true, it's blatant market manipulation
The shocking part? They kept at it even after receiving warnings from the exchanges."He also highlighted that such firms are key to the
"Prop trading firms like Jane Street account for nearly 50% of options trading volumes
If they pull back- which seems likely -retail activity (~35%) could take a hit too
So this could be bad news for both exchanges and brokers," Kamath posted.
