The big picture:
India’s market watchdog Securities and Exchange Board of India (SEBI) recently barred Jane Street from playing in Indian Securities markets for allegedly manipulating stock index and for earning a whopping sum of ₹4,843 crore unlawfully.
The markets regulator said Jane Street Asia Trading, Jane Street Singapore, JSI Investments and JSI2 Investments (all part of Jane Street Group) manipulated Bank Nifty and gained ₹4,843 crore (approximately) illegally. Bank Nifty comprises the most liquid and large capitalised bank stocks of the country. The benchmark captures the capital market performance of Indian banks. It must be noted that the Bank Nifty benchmark index has 12 bank stocks. It includes top banks such as HDFC Bank, ICICI Bank, State Bank of India, Axis Bank, Kotak Mahindra Bank, IndusInd Bank, Federal Bank, IDFC First Bank, Bank of Baroda etc.
What is SEBI’s accusation as per the Interim Order?
In its Interim Order dated July 3, 2025, SEBI said, “By moving the BANK NIFTY index with large and aggressive buying, followed then by large and aggressive selling, JS group was creating a false or misleading appearance of market activity. In the bargain, it was enticing unsuspecting entities trading in BANK NIFTY index options to trade at interim levels that were artificial and temporary.” Further, the SEBI also said, “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.”
Further, SEBI also mentioned in its Interim Order: “JS Group was undertaking an intentional, well-planned, and sinister scheme and artifice to manipulate cash & futures markets and hence manipulate the BANKNIFTY index level, to entice small investors to trade at unfavourable and misleading prices, and to the advantage of the JS Group.”
How did Jane Street defend itself?
According to media reports at length and breadth of the world, Jane Street has refuted SEBI’s allegations about the unlawful trading practices and has instead described the practice as mere ‘basic index arbitrage’ strategy. Further, as per media reports, Jane Street has also said that it plans to challenge the Interim Order of the SEBI, stating in an internal email to staff that it was "beyond disappointed.” The highlight here is that though the Jane Street has squarely denied the allegations, it has deposited nearly ₹4,843 crore in an escrow account on July 11, 2025, in compliance with the Interim Order. As the firm has fulfilled the core requirement laid out by the SEBI, it can now resume the trading operations on the exchanges.
So, what is Jane Street?
A small group of traders and technologists founded Jane Street at a small office in New York, in the year 2000. Jane Street, predominantly a quantitative trading firm, uses algorithms and mathematical models to zero in on the trading strategies. The firm has more than 2,600 employees at five office spaces across the United States, Europe and Asia and is rapidly increasing its base in Hong Kong. Jane Street trades in a variety of asset classes, that is, it trades in stocks of 45 countries. It trades on more than 200 electronic exchanges and other venues. Though Jane Street was known for its expertise in domestic and international ETFs initially, later, it became a major player in equities, bonds and Options markets also.
How does Jane Street describe itself?
In its website, Jane Street says, “Our work blends human intuition — earned through more than twenty years of experience — with cutting-edge research. Our style is both rigorous and pragmatic. Depending on the problem, we might draw on large-scale machine learning, domain expertise, or pen-and-paper mathematics. We’re a firm of puzzle solvers on and off the clock.”
“We are a global liquidity provider and trading firm that uses sophisticated quantitative analysis and a deep understanding of market mechanics to help keep prices consistent and reliable.”
As per the Financial Times report titled ‘Jane Street is big. Like, really, really big,’ the company accounted for 10.4% of North America's equity trading volume in 2023, making it one of the hottest players of Wall Street.
Modus operandi of Jane Street
We all know that in India, the stock market has two main segments – Cash or Spot market and the Derivatives market. In the cash market, investors buy/sell the real/original shares of companies by paying the full cost upfront (no margin) while buying and taking the full cost of the shares while selling. After buying the shares, investors own a part of the companies’ business to the extent of the shares/portion purchased by them. While, selling the shares, investors forgo their ownership in the company. In contrast, in the Derivatives market, traders use tools or financial derivative products such as Futures and Options to bet or speculate on stocks and commodities. In the process, they do not really own the underlying shares or commodities. SEBI alleged that Jane Street played its part in both the cash and derivatives market of India, however, through different entities.
Let’s try to understand this at a very basic level. SEBI alleged that one entity (of the four entities of Jane Street) purchased bulk quantities of bank shares. The move would trigger the price of Bank Nifty to go up when the market opens in the morning. It is claimed that simultaneously, the second entity would speculate on the falling of Bank Nifty's value in the derivatives market.
As per SEBI, on the expiry day of the derivatives contract, that is the day on which the contracts are settled, and towards the end of the trading session of the day, Jane Street would dump the bank shares it had purchased from the cash market, thereby triggering the Bank Nifty index price to plunge deeply. The move would in turn pay off the speculation taken by its other entities in the derivatives market for a fall in prices.
SEBI said that the trading strategy used by Jane Street is known as ‘Extended marking the close’ strategy. According to SEBI, this strategy is a manipulative trading practice wherein a firm aggressively places large buy/sell orders in the last moments of a trading session, with clear intention of influencing the closing price of an index or a stock, so as to gain advantage.
SEBI in its Interim Order said: “This practice is particularly concerning on derivative expiry days, as the closing price affects the settlement value of index-based contracts, thereby impacting payoffs for all market participants. Typically, ‘extended marking the close’ involves aggressive and large buying (or selling) of securities just before market close to push the price up (or down), to ensure the reference stock or the index sets at a level more favourable for even larger derivative positions that are being settled on that day.”
SEBI also said that Jane Street also used “Intra-day Index Manipulation” strategy and indulged in aggressive purchases that pushed up prices during the morning trade. SEBI said that on the same day, from 11.49 a.m. to 3.30 p.m., Jane Street reversed and sold almost all the net cash/ Futures positions in Bank Nifty constituent stocks that were bought in the morning. This created a downward pressure in Bank Nifty constituent stocks and hence the entire index itself.
Conclusion:
Jane Street described the practice as mere ‘basic index arbitrage’ strategy. Financial experts and market enthusiasts said, “Index arbitrage is legal in India and many Indian broking firms have done this time and again using several algorithms and techniques. However, what Jane Street has done is not an index arbitrage and that the “marking the close” strategy is not allowed even in the U.S. and is considered illegal.” Let’s wait and watch for the future developments.
As of now, for a better understanding of the Jane Street market manipulation, we suggest readers to read about how arbitrage works in Securities markets. Sooner, we shall bring to the table, a write-up on the technique of arbitrage. Until then…