The Securities and Exchange Board of India (SEBI) has taken decisive action against Jane Street Group, barring the US-based trading firm from the Indian stock market for allegedly manipulating stock indices through derivative positions. The regulator has also directed the firm to disgorge ₹4,843 crore (approximately $570 million) in unlawful gains, potentially marking the highest disgorgement amount ever mandated by SEBI.

Jane Street's Alleged Manipulation

SEBI's investigation revealed that Jane Street allegedly manipulated index levels in the stock market to earn illegal profits, primarily through the highly liquid Bank Nifty and Nifty index options segments. The regulator alleges that Jane Street aggressively bought significant quantities of banking stocks and futures, temporarily pushing up the Bank Nifty index. Simultaneously, the firm built large short positions in index options. Later, it aggressively sold large quantities of the same banking stocks and futures to profit from their options positions. SEBI contends that this large-scale buying influenced retail investors to invest, leading to market manipulation.

The alleged manipulation occurred over a two-year period, during which Jane Street reportedly made ₹43,289 crore in gains from options trading. SEBI believes that a significant portion of these gains was obtained through unfair means. The regulator's order applies to four entities linked to the Jane Street Group: JSI Investments, JSI2 Investments, Jane Street Singapore, and Jane Street Asia Trading. These entities are now prohibited from participating in the Indian securities market, either directly or indirectly.

SEBI's Response and Investor Protection

SEBI's action against Jane Street underscores its commitment to protecting retail investors and maintaining market integrity. Chairman Tuhin Kanta Pandey emphasized that market manipulation would not be tolerated. The regulator has increased surveillance at both its own level and at the exchange level. To prevent similar incidents from occurring in the future, SEBI is considering several measures, including:

• Enhanced risk disclosures: Brokers and exchanges may be required to provide more detailed risk disclosures to retail traders, offering better information about potential losses and the complexities of derivatives trading.
• Tighter regulation of uncovered options selling: SEBI is considering stricter regulations for uncovered (naked) options selling, a risky practice that can lead to unlimited losses if the market moves against the seller.
• Increased monitoring of Foreign Portfolio Investors (FPIs): SEBI is widening its investigation into alleged market manipulation to include other indexes and exchanges, and is also scrutinizing other FPIs for similar patterns.

SEBI to Launch Awareness Drive

In the wake of the Jane Street case and the increasing prevalence of cyber fraud, SEBI is planning a major public awareness campaign to educate investors about cyber fraud and the risks associated with futures and options (F&O) trading. This initiative is part of SEBI's broader mission to enhance investor protection and promote financial literacy.

Focus on Cyber Fraud Awareness

SEBI recognizes the growing threat of cyber fraud in the capital markets and is taking steps to combat it. The regulator has launched a renewed investor awareness campaign focused on safe digital practices and regulatory-compliant intermediaries. Key initiatives include:

• "SEBI Check" Tool: SEBI has launched the "SEBI Check" tool to validate UPI handles and registered bank accounts for secured payments by investors. This tool, which will be available to investors from October 1, 2025, will allow them to verify whether a UPI handle or bank account is registered with SEBI before making any payment.
• Validated UPI Handles: SEBI is introducing a structured UPI address mechanism for intermediaries, featuring a unique "@valid" handle for all SEBI-registered investor-facing intermediaries. These validated handles will be exclusively allocated by the National Payments Corporation of India (NPCI) for payment collection by SEBI-registered intermediaries.
• App Validation: SEBI is working with online app stores to ensure that only validated apps from intermediaries are available for download, eliminating a major avenue for phishing and credential theft.
• Cybersecurity and Cyber Resilience Framework (CSCRF): SEBI has established a comprehensive CSCRF to strengthen the cybersecurity posture of regulated entities across the Indian financial markets. The framework outlines clear guidelines, roles, and responsibilities for handling cyber threats and requires regulated entities to implement robust cybersecurity measures.

F&O Risk Awareness

SEBI is also concerned about the risks associated with F&O trading, particularly for retail investors. To address this, the regulator is taking steps to make investors more aware of these risks. These steps include:

• Enhanced Risk Disclosures: Requiring brokers and exchanges to provide more detailed risk disclosures to retail traders.
• Tighter Regulations: Considering stricter regulations for uncovered options selling.
• New Risk Metrics: Implementing new risk metrics to curb speculative activity in the derivatives market.
• Investor Education: Collaborating with schools, colleges, and online platforms to educate investors about fraud detection and responsible investing.

By launching this awareness drive, SEBI aims to empower investors with the knowledge and tools they need to protect themselves from cyber fraud and make informed decisions about F&O trading.