On 3rd July, India’s capital markets regulator, the Securities and Exchange Board of India (SEBI), did something sensational. In the most stringent action ever, against a foreign trading firm, it barred Jane Street, the formidable US-based proprietary trading powerhouse, from India’s markets through an interim order. The 105-page document, issued after an 18 month investigation, revealed an operation where a large trading firm, operating through multiple entities, allegedly manipulated our market with impunity to extract spectacular profits. (Read: Jane Street Accused of Massively Rigging India’s Derivatives Market; SEBI Orders Ban, Escrow of Rs4,843 Crore Illegal Gains)
The numbers reveal a stunning scale of operation: Between January 2023 and March 2025, SEBI says Jane Street earned Rs43,289 crore in profits from index options, losing onlyRs7,687 crore in stock futures, index futures and cash trades. This imbalance, it says, reflected a strategy of profiting by orchestrating index moves to mislead other participants. The regulator has impounded Rs 4,843 crore in what it calls unlawful gains. Jane Street has disputed SEBI’s findings and says it intends to “further engage with the regulator. This response is remarkably restrained, considering this is the first time Jane Street has been accused of market manipulation in any of the 45 countries where it operates.
While SEBI’s action is undeniably bold and the investigation seems detailed and convincing, it also raises several uncomfortable questions. The two key ones are: Was Jane Street able to manipulate Indian markets because of low liquidity and shallow depth? Are India’s surveillance tools and regulatory framework lagging behind the complexity of today’s high-frequency trading (HFT) and artificial intelligence (AI)-driven algorithms?
To some of us, the feeling is uncomfortably familiar. In June 2015, I published a whistle-blower's letter, exposing the co-location (Colo) scandal at the National Stock Exchange (NSE). The Colo scandal was about select trading firms exploiting privileged server access to profit from milliseconds of speed advantage. A decade later, that investigation has still to be wound up and only three brokerage firms have been charged. What is worse, despite several external audits and investigations, SEBI was unable to prove collusion and seems to have abandoned parts of the probe where notices were issued. Instead, it is looking at a settlement with the NSE. (Read: Buying Redemption: NSE, SEBI, and the Price of Regulatory Failure)
This time, the alleged manipulation took a different form—expiry-day price swings rather than server latency. Yet, the core problem remains: A market structure that creates irresistible incentives to game the system. Remember, this is an interim order. If SEBI’s follow-up investigation takes the same course as the Colo scandal, then chairman Tuhin Kanta Pandey’s assertion that market manipulation is ‘not going to be tolerated’, will sound hollow, as will his belief that it is just a surveillance issue.
Yet, there is a crucial difference between the two cases. In the NSE Colo case, SEBI was reluctant to investigate potential collusion, systemic failure and governance issues within the Exchange. In contrast, the Jane Street probe began at SEBI’s initiative. It issued a warning in February 2025 through the NSE, asking Jane Street to stop the disputed trading practices and, when the firm allegedly persisted, SEBI acted decisively.
A Strategy Hiding in Plain Sight
SEBI has alleged that Jane Street’s trades followed a two-act pattern. In the first phase, it allegedly made aggressive purchases in the cash and futures markets to drive the Bank Nifty index higher. Retail traders, interpreting this as bullish momentum, rushed into call options. Meanwhile, Jane Street quietly bought puts and sold calls at attractive prices, knowing that its unwinding in cash and futures would cause prices to fall and put values to rise.
In the second act, it precisely engineered this and dumped its long positions to send the Bank Nifty crashing, while locking in profits on options. On expiry days, Jane Street’s index options volume was 350 times the cash-market turnover in underlying stocks. In major bank stocks, such as Kotak and ICICI, its expiry-day trades accounted for up to a quarter of total volume. On 17 January 2024 alone, SEBI alleges, the firm booked Rs778 crore in options profits in a single day, while incurring small losses to set up the trade.
How was this possible? Because derivatives in India have become the main event rather than a hedge for cash market positions. Bank Nifty volumes dwarf the combined turnover of underlying equities. On some expiry days, notional options trading is nearly 100 times the cash-market transactions. The government earns hefty tax revenues from this frothy turnover; but the imbalance leaves a shallow, fragile market ripe for manipulation.
Ironically, these risks were foreseen decades ago. Dr RH Patil, NSE’s founding architect, warned in 2005 that futures in individual stocks and leveraged derivatives invite manipulation. Here’s what he said: “The world over, the stock futures are not favoured in view of the risks they pose to the investors as also to the markets. Futures in individual stocks are considered to be highly risky primarily because they can be manipulated by unscrupulous speculators. A group of large speculators can come together and manipulate the future prices by acting in a concerted fashion. Since a trader in futures has to shell out only margin amounts and not the full price of the value of the contract, leveraging becomes easy.”
Back then, he had argued that index futures were relatively safer. Two decades later, SEBI’s charges suggest that even index derivatives have become vulnerable.
Why India?
Jane Street, founded in 2000, is among the world’s top quant trading firms. Its Indian operations were enormous, accounting for over 10% of its global profits. Notably, Jane Street has never faced manipulation allegations in New York, London, Singapore, or other developed markets. Is this because those markets have deeper liquidity, making it harder for a single player to move prices? Or is it because their regulators have invested more in sophisticated, real-time cross-market surveillance and machine learning tools that flag such anomalies before they spiral?
That would be strange. SEBI’s annual reports since 2020-21 have repeatedly made serious claims about its surveillance department using machine learning, AI and ‘deeply integrated technology’ to ‘unearth complex modus operandi with adoption of better technology and data analytics’. Perhaps these tools enabled SEBI to reconstruct Jane Street’s trades. But is it equally effective in detecting manipulative strategies in real time?
Indeed, it is widely believed that SEBI’s investigation was triggered, not through its detection of manipulative trading patterns but after Jane Street’s lawsuit against Millennium Management in April 2024, alleging that two former traders stole a confidential strategy that generated US$1bn (billion) in profits in India in 2023.That court case revealed how lucrative the approach had been.
The Burden of Proof
The burden of proof for market manipulation is high. Having taken on a large US firm which has not been accused of market manipulation in other jurisdictions, SEBI must show that trades were designed to create artificial price movements rather than simply being aggressive bets. That is why it must conclude the investigation quickly and issue a final order that will hold up to legal challenges by the best legal minds in the world.
At the same time, SEBI needs to examine structural weakness revealed by Jane Street’s manipulation. Should India continue with weekly expiry days which compress volatility into predictable windows? Does the sheer volume of derivatives relative to cash trades compromise market integrity? Should position limits or higher margins be imposed to curb speculation?
Retail Traders as Collateral Damage
A lot of index options volumes in India are driven by individual traders, most of them using off-the-shelf algorithms and SEBI’s own data have shown that 90% of them lose money. These traders act in the belief that an index reflects natural movements of the underlying stocks when, in fact, SEBI’s findings show that a single investor has been able to control both, the index as well as the underlying market, almost at will. This can only happen in a market that lacks real depth and liquidity.
In the US, retail traders have flocked to options, too, but the risks here are magnified by thinner liquidity and weaker market infrastructure. Unless things change, traders will remain at the mercy of sophisticated players who can orchestrate volatility for abnormal gains.
To its credit, SEBI has shown the courage to act, unlike the NSE Colo saga, where it appeared reluctant and defensive. But the bigger challenge is to build market architecture that is harder to game by diffusing volatility, tighter position limits, higher margins for expiry-day trades, etc.
Without these, India’s derivatives market will remain a soft and tempting target for big players to test strategies. Ensuring this may require a willingness to sacrifice some trading volumes (which would mean lower profits for exchanges and taxes for the government) in return for a market that is fair, liquid and resilient.
Most regulators are parasites created by the erstwhile government of Islamic congress party with its desire to fulfill the corrupt ways. The regulators actually find loopholes for the rich and wealthy and regulate only the law abiding common citizens who do not know the loopholes intentionally left by the lawmakers of that time.
Jane Street says its' basic arb across cash & options segments. SEBI on its' part has taken 18 months to pass this interim order when the expectation is to catch bad actors in real-time through surveillance!
Weekly Options is when things started g0ing south - it needs a revisit, especially given the size of the problem.
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Weekly Options is when things started g0ing south - it needs a revisit, especially given the size of the problem.