SEBI’s Crackdown: Unpacking the Allegations Against Jane Street in the Bank Nifty Manipulation Case
The Securities and Exchange Board of India (SEBI) has issued a significant interim order against Jane Street, a prominent global trading firm, alleging manipulation of the Bank Nifty index. This move has sent ripples through the Indian financial markets, raising questions about market integrity and the impact on various investors. The video delves into the specifics of SEBI’s findings and the implications of this unprecedented action.
The Core Allegation: Billions in “Unlawful Gain”
According to SEBI’s order, Jane Street reportedly earned a staggering ₹3,652.12 crore in profits from January 1, 2023, to March 31, 2025, with the vast majority of these gains originating from the futures and options (F&O) segment. SEBI contends that these profits were derived through a sophisticated and manipulative strategy.
The Modus Operandi: A Two-Phase Manipulation on Expiry Days
SEBI’s investigation reveals a two-phase strategy allegedly employed by Jane Street, predominantly on expiry days of the Bank Nifty index:
Phase 1: Pumping the Market (Morning) In the morning session, Jane Street allegedly engaged in massive buying of banking stocks that hold a high weightage in the Bank Nifty index, such as HDFC Bank, ICICI Bank, Axis Bank, and SBI. Crucially, they executed these buy orders at prices above the Last Traded Price (LTP), artificially pushing up stock prices and, consequently, the Bank Nifty index . For instance, in ICICI Bank, 7,368 out of 15,316 buy orders were placed above the LTP .
This upward movement had a direct impact on options premiums: call option premiums surged, while put option premiums declined. Jane Street then capitalized on this by selling call options at these inflated premiums and buying put options at lower premiums. The sheer volume of their trades was immense, accounting for 23-25% of the total market-wide traded value in some banking stocks.
Phase 2: Dumping the Market (Afternoon) In the second half of the trading day, the strategy reversed. Jane Street allegedly began selling the very banking stocks they had accumulated earlier. They placed a large number of sell orders at prices below the LTP, causing stock prices and the Bank Nifty index to crash. For example, 8,780 out of 11,389 sell orders for ICICI Bank were below LTP.
This rapid decline in Bank Nifty led to call options expiring near zero, while put options spiked significantly, allowing Jane Street to profit handsomely from their initial positions.
The Evidence: Impact on Option Premiums and Trading Patterns
The video provides a stark example from the January 17, 2024, expiry. A call option that opened at ₹198 shot up to ₹458 by 9:22 AM, only to plummet to ₹0.65 by 3:39 PM. Conversely, a put option that opened at ₹229 decayed to ₹70 by 9:22 AM, then surged to ₹734 by 3:39 PM.
SEBI’s investigation found that this strategy was primarily executed on expiry days, with significantly higher trading volumes compared to non-expiry days. The regulator views this as manipulative due to the “intensity and sheer scale” of Jane Street’s intervention and the “rapid reversal of these large and aggressive trading” without any plausible economic rationale other than impacting their options positions.
SEBI’s Action and Broader Implications
SEBI had previously issued a caution letter to Jane Street on February 6, 2025, regarding their trading patterns. However, Jane Street allegedly continued with similar activities. Consequently, SEBI has now ordered Jane Street to deposit ₹4,843 crore, identified as “unlawful gain,” into an escrow account. Jane Street disputes SEBI’s findings but has stated its intention to continue engaging with the regulator.
This is a rare instance of SEBI taking such strong action against a foreign entity. The alleged manipulation in F&O, being a zero-sum game, implies that Jane Street’s gains came at the expense of other retail and institutional investors. Domestic trading partners like Nuvama saw their stock fall due to fears of revenue disruption, and other brokerages could also be impacted if trading volumes decrease. It’s crucial to note that this issue primarily impacts short-term F&O trading and not long-term investing.
The SEBI order against Jane Street underscores the regulator’s commitment to maintaining market integrity and protecting investors from manipulative practices. The outcome of this dispute will undoubtedly have significant implications for the Indian financial markets and global trading firms operating within them.