“This kind of manipulation, if proven true, not only distorts the market but also harms retail investors who trade with trust and limited capital,” Gaurav Goel, Founder and Director at Fynocrat Technologies told The Economic Times. “The damage isn’t just financial—it erodes faith in the system.”
Sebi barred the U.S.-based quant trading firm Jane Street and four affiliates from accessing Indian markets on July 3 and ordered the impounding of Rs 4,840 crore in alleged unlawful gains. The regulator’s 105-page order accused the firm of engineering expiry-day moves in Nifty and Bank Nifty indices to mislead traders and profit from options positions.
Goel outlined several regulatory gaps that need plugging. “Manipulators often trade in both stock and options markets to create fake price moves. Sebi should build systems that track both markets together and raise alerts when something looks suspicious,” he said.
He also called for tighter expiry-day limits, more transparency in foreign portfolio investor (FPI) structures, and faster action on unusual profits. “Fast action means less damage.”
The concerns echo across the market. “Jane Street is one of the largest traders contributing to Indian markets,” said Siddarth Bhamre, head of institutional research at Asit C Mehta. “When big players are banned for wrongdoing, others become cautious and reduce activity, leading to lower volumes.”
How the alleged fraud worked
Sebi’s interim order details how Jane Street, through a coordinated network of four entities, including two FPIs registered in Singapore and Hong Kong, allegedly manipulated index levels on 18 expiry days from January 2023 to March 2025. The firm aggressively bought select index stocks in the morning to push the index up, then reversed those trades while holding bearish options positions that gained as the index fell.
In one striking example on January 17, 2024, the firm allegedly made Rs 735 crore in a single day. Sebi said Jane Street’s morning trades “misled participants in index options markets,” while the reversal later in the day pushed prices down and amplified options profits.
“The findings of an earlier research report by SEBI, which inter alia states that 93% of retail investors made losses when trading in the options market, now gain additional context,” the order said. “Such losses… are reflective of the deep damage that the group has inflicted through their illegal activities.”
Also read | How Jane Street targeted over 40 Nifty, Nifty Bank stocks in expiry-day trades
Market shakeup and fallout
The ripple effects were immediate. Shares of Nuvama Wealth Management, Jane Street’s local trading partner, plunged 10.6%. BSE fell 6.4%, while CDSL slipped 2%. Retail participation could take a hit too, warns Zerodha founder Nithin Kamath. “Prop trading firms like Jane Street account for almost 50% of options trading volumes. If they pull back… it could also impact retail activity, which makes up about 35%,” Kamath wrote on X.
“The next few days will be telling. F&O volumes might show just how dependent we are on these prop giants,” he added.
Taxman may step in
The fallout may not be limited to Sebi’s domain. Tax authorities are likely to scrutinise Jane Street’s structure under India’s General Anti-Avoidance Rules (GAAR). Most profits were booked in its Singapore FPI arm, taking advantage of treaty-based tax exemptions, while Indian entities allegedly executed intra-day trades that FPIs are not permitted to do.
“Given the interim order’s observation… GAAR could be invoked to reallocate profits to entities subject to Indian tax,” Harshal Bhuta, partner at PR Bhuta & Co, told The Economic Times.
Also read | Rs 735 crore in 1 day! Jane Street’s most profitable day on Dalal Street was built on Nifty Bank’s fall
Legal and enforcement questions loom
While the order is based on prima facie findings, legal experts say enforcement may prove tricky. “Enforcement of this order now becomes a challenge. Nobody knows whether that money is still with them or whether it has been deployed in other trades,” said Ravi Hegde, in an interview with ET Now. He pointed out that Sebi’s order allows trading restrictions to be lifted if the impounded amount is paid, a move that raises questions on deterrence.
Hegde also noted that the trades “made no economic sense” on the surface and were likely executed solely to influence index movements, misleading common investors. “Per se, it is a fraud. The definition is very clear,” he said, referring to Sebi’s invocation of the Prevention of Fraudulent and Unfair Trade Practices (FUTP) regulations.
Also read | Rs 735 crore in 1 day! Jane Street’s most profitable day on Dalal Street was built on Nifty Bank’s fall
As Sebi widens its probe to other entities and indices, the Jane Street case has become a flashpoint for deeper market reform. With India hosting the world’s largest equity derivatives market, accounting for 60% of global trading volume, the regulator’s next steps may well define the credibility of its surveillance systems in an era of high-speed, cross-border trades.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
