SEBI Interim Order on Jane Street Group: Comprehensive Breakdown

SEBI's interim findings into the Jane Street Group's trading practices uncovered a calculated expiry-day manipulation scheme in India's index options markets. The group exploited deep liquidity mismatches and systemic gaps in surveillance to book approximately ₹4,843 crore in unlawful profits. Through aggressive intraday manipulation of Bank Nifty and Nifty constituent stocks and simultaneous derivative positioning, Jane Street created artificial price signals that misled the broader market, particularly retail participants. SEBI's response involves potential disgorgement, trading bans, and forensic investigation to ensure accountability and market integrity.

Background and Initiation of the Investigation

In April 2024, reports of a legal dispute between Jane Street Group and Millennium Management emerged, alleging unauthorized use of proprietary trading strategies in Indian index derivatives. These public disclosures triggered SEBI's initial review of Jane Street Group's trades. By July 23, 2024, SEBI directed the National Stock Exchange (NSE) to conduct a deeper analysis into their trading behaviour.

Following an initial submission from the Group on August 30, 2024, SEBI's internal team observed irregularities, particularly around weekly expiry dates in Bank Nifty and Nifty index options. By December 2024, a dedicated investigation unit was constituted to carry out minute-level forensic analysis of trading data, pointing to a clear pattern of manipulative trades.

Entities Involved

The SEBI order identifies four entities operating under the Jane Street Group umbrella:

1. JSI Investments Private Ltd.

2. JSI2 Investments Private Ltd.

3. Jane Street Singapore Pte. Ltd.

4. Jane Street Asia Trading Ltd.

All four operate with common ownership, strategic direction, and execution behavior, effectively functioning as a single economic unit in India under the broader Jane Street Group LLC, headquartered in the U.S. and globally regulated.

Genesis of the Discrepancy and SEBI's Investigation

SEBI initiated its preliminary examination into the JS Group's trading activities in April 2024, prompted by media reports referencing a legal dispute between Jane Street and Millennium Management LLC. These reports highlighted allegations of unauthorised use of proprietary trading strategies in Indian options markets. Following this, in July 2024, the National Stock Exchange (NSE) was tasked with examining the JS Group's trading activity for potential market abuse. SEBI further interacted with the JS Group in August 2024, receiving a written submission explaining their trades. By December 2024, SEBI observed "abnormally high or low volatility" on weekly index options expiry days and noted that certain entities, prima facie, were consistently running the largest "cash equivalent" risks in Futures & Options (F&O), particularly on expiry days. This led to the constitution of a dedicated team for a detailed examination, which by February 2025, noted that the JS Group appeared to be engaging in activities violating SEBI's PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) regulations. As a cautionary measure, in February 2025, NSE advised Jane Street Singapore Pte Limited and JSI Investments Pvt Ltd. to refrain from large (cash-equivalent) positions and certain trading patterns. However, the JS Group was observed to continue these large positions in disregard of the caution letter and their own commitments as late as May 2025.

Understanding Market Interplay and Leverage

The alleged manipulation hinges on the strong interrelationship between the prices of derivative instruments and their underlying stocks or indices. Arbitrage mechanisms typically ensure that prices of futures and options move in tandem with their underlying assets, limiting significant deviations and providing "tight guardrails" between cash and F&O markets. However, a key vulnerability arises from the differing levels of liquidity and participation across these markets. On weekly index options expiry days, the cash equivalent traded volumes in index options markets are significantly higher—several times the combined volumes in associated futures and cash markets. For instance, on January 17, 2024, BANKNIFTY options' cash equivalent traded turnover was 353 times that of its 12 constituent stocks' cash market and 98 times the total of cash, stock futures, and index futures.

This disparity is compounded by the enormous "leverage" available in options trading. While buying a stock in the cash market requires 100% capital, futures offer around five times leverage, and options can provide as much as 100 times leverage for the same cash-equivalent exposure, particularly for short-dated options. This high leverage attracts a much larger number of participants to index options (e.g., 1,615,011 unique entities in BANKNIFTY options on Jan 17, 2024) compared to underlying cash (4,675 entities) and futures markets (26,593 entities). Consequently, many index option traders, unaware of underlying market dynamics, rely on the visible index levels, which are determined by the relatively smaller volumes and fewer participants in the cash and futures markets. The JS Group exploited this by influencing the underlying cash and futures markets with "significant volumes (relative to those markets)" to manipulate index levels, thereby creating profitable positions in the more liquid index options market by misleading and enticing numerous smaller individual traders

The "Intra-day Index Manipulation" Strategy : A Detailed Breakdown (January 17, 2024)

This strategy was identified on 15 of the 18 days selected for detailed analysis, generating a total profit of INR 3,914 crores in BANKNIFTY index options across these days. On January 17, 2024, the JS Group executed a classic "Intra-day Index Manipulation" pattern

The "Extended Marking The Close" Strategy

This strategy, identified on three other BANKNIFTY expiry days within the examination period (October 4, 2023, May 8, 2024, and July 10, 2024) and three NIFTY expiry days post-examination (May 2025), is characterised by aggressive, large, and directional intervention in index constituent stocks and futures during the final phase of the trading session (typically 14:30 PM to 15:30 PM). The intent is to influence the closing price of the index to favour large open positions in index options.

July 10, 2024 (Bearish Variant)

On this date, the BANKNIFTY index experienced a sharp decline in the final 45-60 minutes, suggestive of aggressive sell orders. The JS Group significantly sold off INR 163.33 Cr in cash, INR 1,900.57 Cr in single stock futures, and INR 735.86 Cr in BANKNIFTY index futures, totalling INR 2,800 crores. This activity was highly concentrated, with the Group's traded volume in stock futures accounting for over 35% of the market-wide total in the last 60 minutes. The LTP analysis revealed aggressive selling below LTP across heavy-weight stocks, contributing incrementally to downward price movement. This aligns perfectly with their concurrent delta build-up in negative delta, increasing from INR 27,225.22 Cr at 14:30 to INR 44,153.87 Cr by market close. The "spike in market share, limited to a very specific time frame near market close, raises red flags". This strategy generated INR 560 crores in profits for the JS Group across the 3 days it was employed in BANKNIFTY.

May 15, 2025 (Bullish Variant and Disregard for Regulatory Caution)

Despite receiving a caution letter from NSE on February 6, 2025, advising them to refrain from large positions and manipulative patterns, the JS Group continued similar activities. On May 15, 2025, an expiry day for NIFTY weekly options, JS Group employed a bullish "extended marking the close" strategy. They aggressively bought NIFTY constituent stock futures and NIFTY index futures between 13:26:00 and 15:30:00. Their stock futures trades surged to INR 4,910.96 Cr, representing a disproportionately large share (e.g., HDFCBANK Futures: 22.69%, RELIANCE Futures: 21.93%). The LTP analysis confirmed trades were "disproportionately skewed towards at or above LTP," designed to prop up index prices. Concurrently, their net NIFTY delta exposure shifted from negative INR 17,125.75 Cr at open to positive INR 38,297.01 Cr at close, a "directional swing of over INR 55,422.76 Cr". This led to a profit of INR 370 crores across the 3 NIFTY expiry days this strategy was observed in May 2025. This "cynical violation" demonstrates that the JS Group is "not a good faith actor that can be, or deserves to be, trusted".

Total Illegal Gains and Underlying Losses

Across all 18 identified manipulative days within the examination period, the JS Group booked massive profits of INR 4,474 crores in BANKNIFTY index options. In stark contrast, their intraday trading in the underlying BANKNIFTY constituent cash and futures segments resulted in a net loss of INR 201 crores. For the 15 days employing the "Intra-day Index Manipulation" strategy, this loss was INR 199.7 crores. This "otherwise irrational loss" is seen not as a genuine trading outcome but as a "mala fide cost incurred by the JS Group to perpetrate their prima facie manipulative and fraudulent scheme". The Supreme Court, in SEBI vs. Rakhi Trading Pvt. Ltd. (2018), held that "Nobody intentionally trades for loss" and "An intentional trading for loss per se, is not a genuine dealing in securities," deeming it an "unfair trade practice" and "market manipulation" that affects market integrity. In total, the JS Group made a profit of INR 36,502.12 crores across all segments during the examination period, with INR 43,289.33 crores specifically from index and stock options, while incurring losses in stock futures, index futures, and cash equities.

The Loophole Exploited and System Vulnerabilities

The JS Group exploited a key regulatory loophole concerning Foreign Portfolio Investor (FPI) regulations in India. Regulation 20(4) of the FPI Regulations prohibits FPIs from netting trades in the cash market, meaning they cannot perform simultaneous buy and sell trades within the same day. However, JSI Investments Private Limited, an Indian-incorporated entity within the JS Group, was able to execute intra-day trades in the cash segment. This allowed the JS Group to "get around the regulatory prohibition" applicable to FPIs and execute the manipulative scheme, particularly the "Intra-day Index Manipulation" which relied on rapid reversals of large cash market positions.

While the SEBI document does not explicitly label this a "failure of our system," it highlights that this manipulation occurred despite existing regulations and caution letters. The system's proactive detection might have been challenged, as the revelation of the scheme came through a lawsuit in the US, where former Jane Street employees working on the "India Strategy" were allegedly poached by Millennium Management LLC. These employees disclosed the strategy to Millennium, which then sued Jane Street in a US court for illegal earnings from market manipulation, thus exposing the "India Strategy" to public scrutiny and SEBI's attention. This suggests that while SEBI has robust regulations, the complex, multi-segment, high-frequency nature of these manipulative trades, coupled with the exploitation of regulatory nuances through entity structuring, posed a significant challenge. The sheer scale of trading (JS Group being a "multi billion dollar" company with "money rivers flowing" based on 2023 turnover of over $20 billion) and algorithmic high-frequency trading capabilities further added to this challenge.

Who were the Losers and Why They Did It

The primary losers in this elaborate scheme were other market participants, especially "several lakhs of small market participants" and retail traders. The SEBI research report from September 2024, revealing that 93% of over 1 crore individual F&O traders incurred losses from FY22 to FY24, gains "additional context" when juxtaposed with the JS Group's "abnormally high profits" from prima facie manipulation. The JS Group's actions of temporarily propping up the index to build large options positions and then dumping assets to crash the index for profit "enticed unsuspecting entities trading in BANKNIFTY index options to trade at interim levels that were artificial and temporary". The motivation behind these "intricate and egregious manipulation[s]" was clearly for "their own illegal gains", capitalising on the perception game in the market where traders follow trends without understanding the underlying manipulation.

SEBI's Response and Interim Directions

In light of the strong prima facie case, the "egregious distortion of integrity and fairness in the securities market," the massive quantum of alleged illegal gains (INR 4,843.577 crores), the continuing nature of violations, and the risk of asset diversion, SEBI has deemed interim directions necessary. SEBI asserted its duty to intervene to protect investors given that "JS Group is not a good faith actor that can be, or deserves to be, trusted".

As an interim measure, SEBI has issued the following directions:

• Impoundment of Unlawful Gains: A total of ₹4,843.577 crores earned from the alleged violations is to be impounded, jointly and severally, by the JS Group. They are directed to deposit this amount into an escrow account with a lien marked in favour of SEBI.

• Market Restraint: The entities are immediately restrained from accessing the securities market and prohibited from buying, selling, or otherwise dealing in securities, directly or indirectly.

• Asset Freezing: Banks, custodians, and depositories holding accounts or assets of the entities are directed to ensure no debits are made without SEBI's permission, except for compliance with the impoundment order. The entities are also prohibited from disposing of or alienating any of their assets in India without SEBI's prior permission until the impounded amount is credited.

• Position Squaring Off: Existing open derivative positions can be closed out within three months or at contract expiry, whichever is earlier.

• Cease and Desist: The entities must cease and desist from directly or indirectly engaging in any fraudulent, manipulative, or unfair trade practice, including using the identified patterns.

• Monitoring: Stock Exchanges are directed to closely monitor any future dealings and positions of the JS Group to prevent manipulative activity during the ongoing investigation.

The order highlights that while the investigation is ongoing, the actions are based on a "preponderance of probability" indicating manipulative intent and behaviour. The JS Group has 21 days to file a reply or objections and may request a personal hearing