Explainer: Why did India's securities regulator bar Jane Street?

Reuters

09-07-2025

MUMBAI, July 9 (Reuters) - Jane Street has been barred from the Indian securities market by its markets regulator, which has said the U.S. firm used its trading strategies to "manipulate" a key stock market index, leading to losses for millions of retail investors, allegations Jane Street has rejected.
The Securities and Exchange Board of India (SEBI) in its interim order said Jane Street accumulated large volumes of constituent stocks of the Bank Nifty index (.NSEBANK), opens new tab, which comprises the 12 top Indian bank stocks, in the cash and futures markets, thus pushing up the index prices.
Simultaneously, Jane Street took short positions in the derivatives segment by buying cheap "put" options and selling expensive "call" options linked to the Bank Nifty, the regulator said.
The SEBI order said that during the second half of most days in which Jane Street's positions were studied, the U.S. firm reversed the first leg of its trade, selling the constituents in the cash and futures markets, thereby pushing down the price of the index and its constituents.
This, in turn, led to a rise in value for the "put" options and a drop in value for "call" options, earning Jane Street large profits, which outweighed any losses that were incurred during the first leg of the trade.
SEBI said this trading pattern created "a false or misleading appearance of market activity" and attracted "unsuspecting" investors to trade at levels that were "artificial and temporary".
Jane Street, in an internal email to its employees, said the activities in question were what is known as an "arbitrage trade", which is commonly used by large trading firms in financial markets.
In an arbitrage trade, firms simultaneously buy and sell the same asset in different markets and pocket the profits from the difference in prices.
In its internal memo, Jane Street argued there was a large gap between the price of the Bank Nifty index in the options markets and the price implied by the level at which the stocks were trading. This divergence, it said, was clearly observed and Jane Street traded in a direction consistent with closing that gap.
Arbitrage trading is legal in India.
According to details in the SEBI order, the first is size.
In the first leg of the trade, where Jane Street was buying shares of constituents of the Bank Nifty Index, it was doing so in volumes large enough to move the index.
Its trades made up 15%-25% of the entire market's traded value in the constituents of the banking index, SEBI said.
The second is the distortions between the cash and derivative markets in India.
India's derivatives-to-cash market ratio in terms of volume is the highest in the world, SEBI said. In 2024, this ratio was 400 times.
In its order, SEBI highlighted Jane Street's trading activities on January 17, 2024 - one of the trading days under investigation - saying the U.S. firm traded roughly $1.2 trillion (103 trillion rupees) worth of cash-settled options on the Nifty Bank index.
That amount equates to roughly 353 times the trading volumes of the bank stocks in the index.
Proprietary trading giants such as Jane Street have made hefty profits from India's derivatives market, which accounts for roughly 61% of equity options contracts that are currently traded worldwide, according to data from the Futures Industry Association.
In the 12 months to March 2024, proprietary traders and foreign investors made gross profits of 330 billion rupees and 280 billion rupees, respectively, a SEBI study in September 2024 showed.
During that same period, retail traders lost 524 billion rupees.
On Monday, SEBI said retail investor losses on derivative trades widened by 41% to 1.06 trillion rupees in the subsequent year. It did not blame proprietary traders for the widening losses of retail investors and nor did it provide fresh data on gains made by proprietary traders.
SEBI has seized $567 million of Jane Street's funds, equivalent to the amount of what it calls "unlawful gains".
The U.S. firm can deposit that amount and regain access to the Indian markets. It also has 21 days to file its reply or any objections to the order, and can also challenge the order judicially via the Securities Appellate Tribunal.
SEBI, meanwhile, is working on a final order and also expanding its investigation into Jane Street's trade on indexes other than the Bank Nifty.