The ‘Sinister Scheme’ Unveiled: SEBI’s Historic Crackdown on Jane Street

Introduction

Today, we’re going to talk about a recent development that sound’s very concerning for the India’s stock markets. It involves a very well-known global trading firm, Jane Street, and our own market regulator, SEBI.

This news is not just about a scam worth thousands of crores; it’s also about how our markets operate and how the common investor is protected.

Let’s exlore deeply and understand what actually happened in this Jane Street episode

1. So, What’s Happening With Jane Street?

Jane Street is a global proprietary trading firm. It was founded in year 2000.

What does that mean? It is a company that trades on its own account, not on behalf of clients.

It’s a massive entity, with over 3,000 employees across five global offices. They operate in 45 countries.

Jane Street is known for using sophisticated quantitative analysis and high-speed trading techniques.

SEBI has taken a very strong stand. They have banned Jane Street and its affiliated entities from accessing the Indian securities market. Not just that, SEBI has also ordered them to return a whopping Rs.4,843.5 crore (about $550 million) which they made using alleged unlawful profits.

This could very well be the largest disgorgement (return) amount ever directed by SEBI.

Jane Street, for its part, has disputed these allegations.

The ban applies to four entities connected to Jane Street:

• JSI Investments,
• JSI Investments Pvt Ltd,
• Jane Street Singapore Pte Ltd, and
• Jane Street Asia Trading.

Interestingly, two of these are based here in India. The other two are registered foreign portfolio investors (FPIs) in Singapore and Hong Kong.

2. How Did This All Begin?

You might be wondering, how did SEBI even got to find out about the Jane Street’s shady trades?

Well, the story gained global attention last year due to a legal dispute in a US court (not India, US).

Jane Street had sued a rival firm, Millennium Management, accusing two former traders of stealing a “highly valuable, unique, and proprietary” trading strategy.

It was revealed in the US court that this strategy involved India’s booming options market and had generated $1 billion in profits for Jane Street in 2023 alone.

This legal battle, which was later settled, cast a long shadow and prompted SEBI’s detailed investigation.

3. What Was The Alleged “Sinister Scheme”?

SEBI’s investigation has outlined what it calls a “sinister scheme” to manipulate markets (read here).

The regulator looked closely at 18 specific trading sessions. Out them, 15 involved the Bank Nifty and 3 involving the Nifty 50. The period was between January 2023 and March 2025, and even some in as late as May 2025.

Here’s the alleged strategy. I’ll try to explain in as simply as I’ve understood it:

• “Morning Pump, Afternoon Dump”: SEBI claims Jane Street used a two-phase approach. In the initial hours of trading, they would aggressively buy large quantities of Bank Nifty constituent stocks and futures. This heavy buying would temporarily push up or support the index level. This created a false impression of market strength. It mislead other traders, especially us, the retail investors. into believing the index was genuinely rising.
• The Payoff: While Jane Street was busy making the index appear stronger by buying shares and futures in the morning, they were simultaneously making large bets that the index would eventually fall. They did this by taking positions in “index options.” This meant they were preparing for the market’s eventual decline even as they temporarily pushed it higher. Later in the same day, Jane Street would then aggressively sell almost all the shares and futures they had bought earlier. This sudden and large selling activity would naturally force the prices of those shares and the entire index to drop sharply. This was a key part of their strategy to manipulate the market downward and trigger their intended profits. Even though they might lose some money on the shares and futures they quickly bought and sold, the massive profits they made from their “down-market” bets in index options were significantly larger than those losses.

SEBI highlighted January 17, 2024, as their most profitable day. Jane Street allegedly made a staggering Rs.734.93 crore in a single day using this “Intraday Index Manipulation” strategy.

Overall, between January 2023 and March 2025, Jane Street reportedly made a total profit of about Rs.36,500 crore from trading in Indian equity options.

Out of this, they earned Rs.43,289.33 crore from index and stock options, while incurring losses in stock futures (Rs.7,208 crore), index futures (Rs.191 crore), and cash equities (Rs.288 crore).

Another strategy identified was “Extended Marking the Close.”

Here, large trades are placed right before market close to influence the final settlement price of derivatives, impacting payoffs for all participants. This was observed even after SEBI had issued a warning to Jane Street in February 2025.

SEBI also noted that Jane Street allegedly by passed foreign portfolio investor (FPI) rules which prohibit intraday trading in the cash market. They reportedly used their India-based entities for the cash market trades, while their offshore FPIs reaped profits from the options.

4. The Impact on the Indian Stock Market

This ban has broader implications for our Indian stock markets.

There are three important points for us to understand:

• First and foremost, it shines a light on the vulnerability of retail investors. SEBI’s own research has shown that an alarming 93% of retail investors lose money when trading in the options market. When you see a firm making massive, “abnormally high profits” through alleged manipulation, it gives “additional context” to why so many retail traders face losses. It “reflects the deep damage” such activities inflict.
• Second, we might see some short-term shifts in trading volumes. Proprietary trading firms like Jane Street contribute significantly, almost 50% of options trading volumes in India. If such firms reduce their involvement, retail activity, which makes up about 35%, could also take a hit. This could potentially affect stock exchanges and brokerage firms (see why BSE Ltd. stock is falling due to Jane Street episode). However, in the long run, enforcing stricter regulations will lead to cleaner price discovery and reinforce institutional trust in India’s capital markets. It sends a clear message to global investors: India is open for business, but only on the terms of fair play and sound governance.
• Finally, Jane Street’s financial structure in India is now also under the scanner of the income tax department. They’re looking into whether the firm used its international entities to avoid paying taxes, potentially classifying it as an “impermissible avoidance arrangement.” Moreover, the SEBI investigation is not over yet; it is expected to expand to other expiry days and other indices, even looking into trades on other exchanges.

5. Impact on BSE Ltd. Share Price Due To Jane Street Ban

Shares of BSE Ltd. plunged 7.34% following the SEBI’s ban on US-based trading firm Jane Street (read here about it).

This price dip was caused due to a decline in the investor’s sentiment. It was a direct reaction to SEBI’s stringent action against Jane Street.

A key factor influencing BSE’s share price fall is the substantial role proprietary trading firms, such as Jane Street, has in India’s derivatives market volume. It is interesting to read the observation of Zerodha’s Nithin Kamath on this episone of Jane Street.

According to Zerodha CEO Nithin Kamath, these firms account for nearly 50% of options trading volumes. Agencies like Jane Street had a significant footprint in India.

Consequently, if major proprietary trading firms like Jane Street reduce their participation or pull back from the market, it is expected to negatively impact both stock exchanges and brokerage firms.

The potential decrease in trading volumes, particularly in the highly liquid derivatives segment that exchanges like BSE facilitate, generates concerns among investors about future revenue for these exchanges.

This anticipation of reduced trading activity directly contributes to a sudden profit-taking in BSE shares.

6. Why India Became So Attractive

So, what made India such a fertile ground for firms like Jane Street?

The answer lies in the dramatic transformation of our derivatives market.

Between 2019 and 2024, derivatives trading volumes in India skyrocketed nearly 40 times. This make the Indian derivative market the world’s largest derivatives market by volume.

The real game-changer was the meteoric rise of the retail trader.

• In 2018, retail investors made up just 2% of derivatives trading.
• By 2024, that figure had ballooned to an incredible 41%. It was an estimated 820-fold jump in retail-driven volumes.

Think about it, it is interesting. Trading accounts jumped from 3.6 crore in 2019 to over 15 crore in 2024. This boom was fueled by accessible mobile apps, social media tips, and the allure of high-leverage gains. Most of these new investors came into the market to trade in the derivative segment.

Suggested reading:

• Why SEBI banned Offshore Derivative Instruments (ODI).
• Difference between cash and derivative market.

Then came the introduction of “weekly options” around 2020.

These were cheaper, required less capital, and offered faster turnarounds, quickly becoming wildly popular with retail traders. You can read this news piece about why SEBI wants to change derivative expiry days.

This combination created a market with predictable price movements and rich patterns. It was an absolute dream for high-frequency trading firms like Jane Street. With their speed and sophisticated algorithms, they were perfectly positioned to capitalize on these retail habits.

Conclusion

SEBI’s decisive action against Jane Street is worth noticing.

While there might be some short-term ripples in market activity, these measures are crucial for the long-term health and credibility of our financial ecosystem. Though someone might question, if weekly options were so risky, why it was introduced in 2020 in the first place. Anyways, what matters more is the attitude to take a corrective step than the mistake itself.

SEBI’s action is a clear signal that fair play and transparency are non-negotiable.

For us, the common investors, it’s a reminder that while the markets offer opportunities, they also demand vigilance and trust in the regulatory framework.

What are your thoughts on this development? Let us know in the comments below.

Have a happy investing.