Jane Street, a Wall Street trading powerhouse known for its secretive nature, is facing intense scrutiny in India following accusations of market manipulation by the Securities and Exchange Board of India (SEBI). The regulator has ordered Jane Street to return over $550 million (Rs 4,843 crore) in "illegal gains" and has barred the firm from accessing the Indian securities market. SEBI alleges that Jane Street engaged in a "sinister scheme" to manipulate Indian bank stocks and related derivative contracts, accumulating profits of approximately Rs 36,500 crore (about $4.3 billion) over a little over two years.
SEBI's investigation revealed that Jane Street implemented a strategy of aggressively purchasing Nifty Bank component stocks and futures in early trading hours, leading to artificial price inflation. The regulator highlighted the "intensity and sheer scale" of Jane Street's intervention in the underlying component stock and futures markets, noting that the firm consistently held the largest risks in "cash equivalent" terms in the futures and options (F&O) segment, particularly on index option expiry days.
The probe, which spanned 15 months, involved caution letters and repeated warnings that SEBI claims were ignored by Jane Street. SEBI alleges that Jane Street repeatedly used high-volume, cross-segment strategies to distort index levels of Bank Nifty and Nifty 50 during weekly expiry days, misleading a large number of retail traders and booking enormous profits. One such strategy involved buying Rs 4,370 crore worth of Bank Nifty stocks on the morning of January 17, 2024, to inflate the index, only to unwind the trades later while holding bearish options bets — earning Rs 734.93 crore that day alone.
Jane Street, while denying any wrongdoing, has deposited Rs 4,843.58 crore in an escrow account as requested by SEBI and has requested the regulator to lift the trading restrictions. In a leaked email to employees, Jane Street expressed disappointment with SEBI's "extremely inflammatory" accusations.
The case has brought the operations of foreign quantitative trading firms in India under intense examination. SEBI highlighted that Jane Street's Indian subsidiaries are predominantly managed by foreign executives, with limited local personnel involved. Despite being legally separate Indian entities, SEBI found that JSI Investments and JSI2 Investments are effectively controlled by Jane Street's global operations. Concerns have been raised about offshore control and high-frequency trading in India's derivative markets, sectors where foreign quant firms have increasingly made inroads under complex legal structures.
The repercussions of this case could be far-reaching. Other foreign trading firms active in India, including Millennium Management, Citadel Securities, Alphagrep Securities, and Tower Research Capital, could also find themselves caught up in SEBI's investigations. Moreover, the case is likely to increase worldwide regulatory scrutiny of Jane Street, which operates in 45 countries globally. Financial regulators often pay close attention to the actions of their counterparts, and SEBI's accusations will likely prompt other watchdogs to examine Jane Street's activities in their own markets. The reverberations of the Jane Street case will "define SEBI's regulatory identity for years to come,” according to Chandra Shekhar, an associate professor and financial consultant at the Mahat Group.
