How Sebi sniffed out Jane Street’s market manipulations

Jane Street Group, which was founded in New York in 2020, is known for its high-frequency algorithmic trading. Sebi said four JS Group entities, including two based overseas, systematically manipulated India’s Bank Nifty, Nifty 50, Finnifty, and Midcap Nifty indices through its constituent stocks and derivatives over the past two years through May.

Mint explains how Jane Street purportedly manipulated India’s index options.

What did Sebi find in Jane Street’s trading behaviour?

Sebi examined 18 instances over the past two years when Jane Street allegedly manipulated the indices by executing these two distinct, but coordinated, strategies on index derivatives expiry days.

Of the 18 instances, 15 are referred to as “intraday index manipulation” and three as “extended marking the close” strategies. According to Sebi, the two strategies allowed Jane Street to artificially move index levels to benefit from pre-existing options positions.

Here’s how these two strategies allegedly worked in tandem:

Jane Street would hold disproportionately large index options positions even before an expiry day began—typically in Bank Nifty puts (bearish bets) and calls (bullish bets)—depending on market direction. Meanwhile, in the cash and futures market, the firm would execute trades at a loss, serving to push the indices in a direction favourable to its options positions.

Let’s picture that in more detail.

On expiry mornings, Jane Street would allegedly buy large volumes of Bank Nifty constituent stocks and corresponding futures contracts. It would make these trades aggressively so they would artificially drive the Bank Nifty index higher. At the same time, Jane Street would increase its bearish positions in options—buying puts and selling calls—anticipating a reversal later in the day.

Shortly after, Jane Street would reverse its stance, aggressively selling the same stocks and futures it had pumped up earlier. This would place a downward pressure on the Bank Nifty, lifting the value of Jane Street’s put options and depreciating its call options, allowing the firm to book substantial profits. Even if it incurred losses on stock/futures positions, those would be outweighed by the windfall gains in options.

What happened on 17 January 2024?

Here’s how Jane Street manipulated the then hugely popular Bank Nifty weekly index on 17 January 2024, when it made a profit of ₹743.93 crore by dealing in the index’s constituent cash and derivatives segments.

Bank Nifty opened that day 3.2% lower at 46,573.95 points, with media reports attributing the gap down to apparent disappointment with HDFC Bank Ltd’s third-quarter results that were announced the previous day.

In the otherwise falling market, Jane Street purchased ₹4,370.03 crore in 11 out of 12 of Bank Nifty’s cash and futures constituents, including HDFC Bank, ICICI Bank, Axis Bank, State Bank of India, and Kotak Bank, between 9:15 am and 11:47 am, as per Sebi’s investigation.

This buying of Bank Nifty cash and futures enabled the Bank Nifty to rise from its opening lows, making put options cheaper and call options costlier.

At this point, when other participants in the index options market were misled by the support for Bank Nifty, Jane Street created ₹32,114.96 crore cash equivalent bearish positions of Bank Nifty options by buying cheaper put options and selling costly call options.

Then, between 11:49 am and 3:30 pm, Jane Street sold all of the net cash and futures positions of Bank Nifty constituents that were bought at market opening up to 11:47 am.

The aggressive selling pushed down prices in Bank Nifty stocks and the Bank Nifty itself.

Jane Street booked losses in intraday cash/futures market trades, but made greater profits in the bearish options positions created in the first leg—as the Bank Nifty tanked, the purchased puts rose in value and the sold calls lost value. Part of these profitable trades were squared off, while the others were allowed to expire at a profit with the Bank Nifty ending 4.28% lower than its previous closing.

In effect, on 17 January 2024, Jane Street made ₹734.93 crore in options profit while taking a ₹61.6 crore loss in underlying stocks and futures—what Sebi called the “cost of manipulation”.

What happened on 10 July 2024?

In a second pattern, as seen on 10 July 2024, Jane Street allegedly executed large directional trades in the final 30-60 minutes of trading. These trades—targeted at Bank Nifty and Nifty constituents and futures—pushed the closing index level to a value favourable for its large options portfolio.

Since settlement prices for index options are derived from the day’s close, this strategy, termed “Extended Marking the Close”, allowed Jane Street to engineer a desired expiry level.

How did Sebi detect Jane Street’s manipulations?

Sebi began its investigation in April 2024 after foreign media reports said Jane Street was involved in a global dispute over alleged misappropriation of trading strategies. These reports prompted Sebi to conduct a preliminary review of Jane Street’s activities in Indian markets. The regulator’s probe spanned cash equities, index futures, and options markets.

Sebi deployed forensic analysis of Jane Street’s trade timestamps, order placements versus last traded price, gross traded value, and delta positions in options. The trades systematically aligned with Jane Street’s options exposure, suggesting a motive to manipulate index levels.

Importantly, Sebi cross-referenced these patterns with Jane Street’s own court filings in unrelated global litigation, where it described high-value, secretive strategies resembling those seen in India.

In February 2025, the National Stock Exchange issued a cautionary letter to Jane Street instructing it to avoid large directional index option positions and manipulative trading patterns. Jane Street acknowledged this and committed compliance.

However, Sebi found that on 15 May the group again deployed similar manipulative strategies, this time on Nifty expiry.

What was the financial impact?

Sebi found that between January 2023 and March 2025 Jane Street earned ₹43,289 crore in index and stock options and another ₹900 crore in stock options, while making losses of ₹7,208 crore in stock futures, ₹191 crore in index futures, and ₹288 crore in cash equity. The net profit: ₹36,502 crore.

In its 3 July interim order, Sebi also noted that out of 11,219 foreign portfolio investors (FPIs) registered with it as on 31 March 2024, only 2.50% were engaged in algorithmic trading. “… JS Group is part of this short-term algorithmic trading community”, it said.

What more did Sebi say in its interim order?

The regulator found that Jane Street’s trades in stocks and futures had no standalone economic rationale—their only function was to move the benchmark index.

“These trades had no standalone economic rationale and served only to influence benchmark prices,” whole-time member Ananth Narayan G. noted in the 3 July interim order.

“The demonstrably large and aggressive trading behaviour of JS Group in the BANKNIFTY constituent stocks and futures had little standalone economic rationale, other than to manipulate the prices of securities and benchmarks, to mislead, entice, or cause loss to the participants in the index options markets, so that the JS Group could in turn benefit immensely and illegally from the even larger positions that they were creating or carrying in index options,” Sebi said in its interim order.

Sebi also noted that as FPIs are not permitted to conduct intraday trades in the cash market, Jane Street allegedly routed such trades via one of its Indian entities, JSI Investments, to bypass this restriction.

Following its investigation, Sebi has invoked the Prohibition of Fraudulent and Unfair Trade Practices Regulations, accusing Jane Street Group of unfair trade practices, market manipulation, creating a false market appearance, and violating its FPI trading rules.

The four Jane Street entities have 21 days to respond to Sebi’s interim order and seek a hearing.

What do legal experts say?

According to securities lawyers, Sebi’s interim order has all characteristics of a final order as it came after detailed investigations.

“The interim stage, if any, was when NSE issued a caution letter to Jane Street on February 06, 2025,” Aditya Bhansali, founding partner at Mindspright Legal.

On whether Jane Street’s strategies constituted market manipulation, Bhansali said taking large positions in cash and option segments is merely a strategy and could not be termed as manipulative.

“People with deeper pockets will always be in a position to manipulate. Such orders intervene with the free spirit of the market in a disclosure-based regime like India. The discretion to trade after disclosure should be left with the individual investor,” Bhansali added.

He, however, said India’s market regulations could be tightened. “Of course, a stronger regulatory framework in terms of limits can be brought in by the regulator to avoid dominance.”