Jane Street vs SEBI: Unpacking the Market Manipulation Allegations and the Risks Involved in F&O Trading
India’s markets regulator, the Securities and Exchange Board of India (SEBI), has banned the New York-based proprietary trading firm Jane Street Capital for alleged market manipulation to make major illicit gains that it took out of the country.
According to SEBI, Jane Street allegedly implemented algorithms that allowed it to manipulate NIFTY and Bank NIFTY index prices, making unlawful net profits of more than Rs 36,500 crore between January 2023 and March 2025.
In this blog post, we’ll delve into the allegations, the risks involved in F&O trading, and what this means for investors and traders in India.
Jane Street’s Alleged Market Manipulation Strategy
SEBI suspects that Jane Street’s algorithm-based strategy consisted of two main stages: Intra-day Index Manipulation and Expiry Day Manipulation. Early in the day, Jane Street’s algorithms would rapidly buy major banking stocks that were components of the ‘Bank NIFTY’ index, artificially driving the price of the index up.
Noticing this, thousands of retail investors would jump on the rise, buying call options and selling puts, hoping for persistent growth. However, the rise would be spurious, allegedly orchestrated by Jane Street, which was buying put options and selling calls.
On contract expiry days, Jane Street’s algorithm would dump its index futures and holdings, resulting in a sudden decline of the share price. This led to massive losses for retail investors, whose call options would be labeled useless and who would be forced to pay the premium.
The Risks Involved in F&O Trading
F&O trading is one of the riskiest trading choices a retail investor can make. The derivatives market predominantly consists of futures and options (F&O) trading. Futures are contracts that legally bind holders to buy or sell a certain asset at an agreed-upon price at some time in the future, regardless of what the price is then.
Options are contracts that give buyers the right (not an obligation) to purchase an asset from a willing seller at some time in the future. To ensure fairness, buyers are required to pay the seller a premium right after signing.
There are two types of options contracts: call options and put options. Call options give holders the ability to buy the asset at the predetermined price. Put options allow holders to sell the asset at the predetermined price.
According to SEBI, more than 9 out of 10 retail investors in India have lost money in FY25 trading on F&Os. However, it is possible to minimize these risks by understanding ways to optimally use F&O trading, potentially in terms of limiting capital expended, enhancing risk tolerance, and more.
Jane Street’s Response and the Future of the Firm
Jane Street has refuted the allegations about unlawful trading practices but has deposited more than Rs 4,800 crore in an escrow account, in compliance with the requirements of the interim order passed by SEBI on July 3.
The company is set to contest the ban and the freezing of some of its funds. Jane Street has formally requested access back to its trading activities in India. SEBI has said it is in the process of examining the company’s request.
Conclusion
The Jane Street vs SEBI controversy highlights the importance of understanding the risks involved in F&O trading and the need for investors and traders to be cautious when trading in the derivatives market.
The case also underscores the importance of regulatory oversight and the need for firms to comply with market rules and regulations.
