SEBI bans Jane Street over ₹4,843 crore ‘unlawful earnings’

By Admin

05 Jul, 2025

In a move that sent shockwaves through India’s financial markets, the Securities and Exchange Board of India (SEBI) has imposed a sweeping ban on Jane Street, a U.S.-based investment firm, for allegedly manipulating the Bank Nifty index and raking in illegal profits amounting to ₹4,843 crore. The action comes after a detailed probe into the trading practices of Jane Street's Indian entities, which uncovered sophisticated strategies designed to distort the market and mislead investors.

What Happened?

SEBI’s investigation revealed that Jane Street entities   JSI Investments, JSI2 Investments, Jane Street Singapore, and Jane Street Asia Trading   were involved in a manipulative scheme targeting the Bank Nifty index, which comprises 12 major bank stocks.

The manipulation unfolded in two stages:

1. Aggressive Buying: During the initial part of the trading day, Jane Street aggressively purchased Bank Nifty constituent stocks and futures worth ₹4,370.03 crore. These massive transactions, made while the index was falling, temporarily pushed the index up or stabilized it, raising suspicions.
   
   

2. Aggressive Selling & Options Gain: Later in the day, the group reversed its position by aggressively selling the same stocks and futures, driving the index back down. While these trades resulted in losses in futures, they had built bearish options positions worth ₹32,114.96 crore   buying cheap put options and selling costly call options. As the index dropped due to their own selling, the firm profited heavily on these options.
   
   

How Did They Circumvent FPI Rules?

SEBI’s order highlighted that Jane Street’s incorporation of an Indian entity helped it bypass certain FPI (Foreign Portfolio Investor) restrictions, specifically those related to cash market transactions. This strategic loophole enabled the firm to execute its manipulative trades without directly violating FPI norms.

SEBI’s Immediate Actions

• Market Ban: Jane Street and its affiliated entities have been barred from participating in Indian securities markets.
  
  

• Escrow Account Order: SEBI has directed the group to deposit the ₹4,843 crore it earned unlawfully into an escrow account with a scheduled commercial bank.
  
  

• Asset Freezing: Banks, depositories, and other institutions have been instructed not to allow any debits from the firm’s accounts without SEBI’s permission.
  
  

• Deadline for Response: The entities have 21 days to respond to SEBI’s show-cause notice.
  
  

What This Means for the Market

Experts believe that this landmark enforcement action could lead to significant reforms in India’s derivatives and high-frequency trading landscape.

“SEBI may introduce stricter position limits to curb excessive control by single entities, or implement real-time monitoring systems to detect manipulative patterns like intra-day index manipulation,” said Sonam Chandwani, Managing Partner at KS Legal & Associates.

Other potential reforms include:

• Enhanced disclosures for proprietary trading firms.
  
  

• Tighter margin requirements.
  
  

• Improved volatility controls or circuit breakers.
  
  

These reforms aim to protect retail investors and restore market integrity, though they may increase compliance costs for firms.

A Nuanced Path Forward

While the incident has sparked concern over high-frequency trading (HFT) and algorithmic trading, legal experts urge caution against blanket bans.

“While some rail guards are needed as regards HFT and Algo Trading, one hopes that a nuanced approach continues to be adopted,” noted Jayesh H, Co-founder of Juris Corp.

Conclusion

The SEBI-Jane Street episode underscores the need for vigilance and robust regulatory frameworks in today’s fast-evolving financial markets. As India’s capital markets continue to grow in size and complexity, maintaining a balance between innovation and investor protection will be key to ensuring long-term trust and stability.