Jane Street Faces SEBI's Accusations of Market Manipulation

In July 2025, the Securities and Exchange Board of India (SEBI) accused U.S.-based high-frequency trading firm Jane Street of manipulating the Bank Nifty index through coordinated trading strategies. SEBI alleged that Jane Street engaged in a scheme involving the purchase of index components in both cash and futures markets while simultaneously taking short positions in index options, thereby distorting market prices and misleading retail investors. The regulator claimed that Jane Street's activities resulted in over $4 billion in profits from trades in India between early 2023 and March 2025.

SEBI's investigation focused on 15 Bank Nifty expiry days, during which Jane Street allegedly executed a strategy to artificially influence the index's value. The firm reportedly bought large quantities of constituent stocks and futures in the morning to push up the index, then sold these positions in the afternoon to drive the index down, profiting from corresponding options positions. This manipulation was said to have misled thousands of retail derivatives traders and violated the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations.

In response to these findings, SEBI imposed a temporary ban on Jane Street's operations in India and impounded approximately ₹4,843 crore (around $567 million) in alleged unlawful gains. This action marked the largest impounding by the regulator to date. Jane Street complied by depositing the amount into an escrow account, which led to the lifting of the trading restrictions. However, the firm has contested SEBI's allegations, asserting that its activities constituted legitimate index arbitrage and criticizing the regulator for denying access to essential documents. Jane Street has filed a legal case with the Securities Appellate Tribunal (SAT) to challenge SEBI's accusations and seek disclosure of critical information.

In the wake of this case, SEBI introduced new rules for monitoring intraday positions in equity derivatives, effective from October 1, 2025. The new framework sets an intraday net position limit of ₹5,000 crore (approximately $571.39 million) per entity in index options, up from the previous end-of-day limit of ₹1,500 crore (approximately $171.42 million). Gross intraday exposure is capped at ₹10,000 crore (approximately $1.14 billion), applied separately to long and short positions. Stock exchanges are required to monitor compliance through at least four random daily snapshots, including one during the peak trading period between 2:45 PM and 3:30 PM IST. Violations will lead to scrutiny and possible penalties, especially on contract expiry days, with penalties determined by the exchanges.

The case has garnered global attention due to Jane Street's prominence and SEBI's assertive regulatory measures. It underscores the challenges regulators face in overseeing complex trading strategies employed by high-frequency trading firms and highlights the potential risks such activities pose to market integrity and retail investors. The incident has prompted a reevaluation of regulatory frameworks to better address market manipulation and protect investor interests.

Jane Street's legal challenge against SEBI's allegations is ongoing, with the firm seeking to halt further action while its appeal is heard. The outcome of this case could have significant implications for the regulation of high-frequency trading and the enforcement of market manipulation laws in India and beyond.