How Jane Street Used Controversial Expiry-Day Strategy ‘Marking The Close’ To Extract Massive Gains | Economy News
New Delhi: Jane Street case: The Securities and Exchange Board of India (SEBI) has accused US-based trading giant Jane Street Group LLC of manipulating Nifty index options using a controversial expiry-day strategy known as “marking the close.” The regulator claims the firm leveraged deep pockets and powerful algorithms to distort settlement prices and extract massive gains — allegedly illegal under Indian market norms.
Jane Street has denied the allegations but said it will engage with regulators.
What Is “Marking the Close”?
“Marking the close” refers to a strategy where a trader executes large-volume trades in the final 30 minutes of market activity to influence the closing price — which determines the settlement value of derivatives. SEBI alleges Jane Street used this tactic to manipulate Nifty and Bank Nifty option premiums, particularly out-of-the-money (OTM) contracts, and profited heavily.
5-Point Explainer: How Jane Street Allegedly Pulled It Off
1) Understanding Options Premiums
Options derive value from the underlying asset’s price. A Call option’s premium rises if the stock or index goes up; a Put option’s premium rises when prices fall.
2) Targeting Index Options
The Nifty index is made up of heavyweight stocks like Reliance, HDFC Bank, Infosys, etc. If the index moves, Nifty option premiums also shift — especially for At-The-Money (ATM) and In-The-Money (ITM) options.
3) Buying Cheap OTM Options
Jane Street allegedly bought large quantities of cheap OTM options ahead of expiry. These contracts are risky but can deliver multi-fold returns if they become ITM by market close.
4) Triggering Index Movement
After buying OTM options, Jane Street reportedly placed high-volume trades in index heavyweights during the final 30 minutes, nudging the index level toward their strike price. This made previously worthless options shoot up in value.
5) Profiting from the Close
As the settlement price is based on the last 30-minute weighted average, Jane Street’s well-timed, algorithm-driven trades allegedly allowed them to manipulate expiry-day premiums — booking massive profits in minutes.
Illegal and Unfair, Says SEBI
SEBI’s 105-page interim order deems this tactic unfair, deceptive, and manipulative, falling foul of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) norms. It claims Jane Street made Rs 4,844 crore in unlawful gains, including Rs 735 crore on a single day — January 17, 2024.
91 percent Retail Traders Lost Money
The fallout is significant. SEBI’s own data shows 91 percent of retail F&O traders lost money in FY25, racking up total losses of over Rs 1.05 lakh crore — up 41% from FY24. The regulator is now probing whether expiry-day strategies like Jane Street’s contributed to these mounting retail losses.
What’s Next?
SEBI is expected to widen its probe to include other high-frequency traders and proprietary desks. Tighter expiry-day controls, limits on index concentration, and algorithmic audit trails are among the reforms under discussion. Jane Street, meanwhile, has denied wrongdoing and says it will cooperate fully with Indian authorities.
(This Article was originally produced in Zee Business)
