Jane Street vs SEBI: Battle Over Market Manipulation Allegations

by Priya Bhatiya

Posted on July 29, 2025

Jane Street’s Defense Against SEBI’s Stock Market Manipulation Allegations

Background of SEBI’s Allegations

In early July 2025, the Securities and Exchange Board of India (SEBI) accused Jane Street, a prominent U.S.-based proprietary trading firm, of manipulating the Indian stock market—specifically, the Bank Nifty index and its constituent stocks. SEBI imposed a trading ban and froze assets amounting to INR 4,843 crore (around $565 million), alleging that Jane Street’s sophisticated trading strategies led to unlawful profits at the expense of market fairness and retail investors.

Nature of the Alleged Manipulation

SEBI’s interim order highlighted two main patterns it categorized as manipulation:

• Intraday Index Manipulation: Jane Street allegedly executed large-scale purchases of Bank Nifty stocks and futures in the mornings to drive up index prices, while simultaneously taking outsized short positions in Bank Nifty options. In the latter part of trading sessions, they would aggressively sell stocks and futures—pushing the index down to maximize gains in their options positions. SEBI pointed out that the hedge ratio (option positions versus stock/futures positions) was unusually high, suggesting these were not genuine arbitrage trades but deliberate directional bets.
• Marking the Close: SEBI accused Jane Street of spreading large-scale selling in the final hour of trading on expiry days to depress the index’s volume-weighted average price (VWAP), which determines options settlement. According to SEBI, this benefited Jane Street’s short call and long put options positions.

Jane Street’s Defense

Jane Street has categorically denied any wrongdoing, characterizing its trading activities as legitimate index arbitrage and vital market-making. The company argues that:

• Its trades provided essential market liquidity, especially in a market dominated by retail traders and significant option volumes.
• The use of multiple legal entities was for tax optimization, not to amplify market impact illegitimately.
• Its cash equity and futures trades were carried out to hedge exposures from large options positions (i.e., routine risk management for expiring derivatives).
• The large notional sizes and distinctive trading patterns were required for hedging and do not constitute manipulation.
• Selling near the close of trade on expiry days is normal for managing expiring hedges—not to artificially move settlement prices.

Legal and Procedural Updates

• Jane Street has formally requested additional time from SEBI to respond to the allegations and the interim order, signaling preparations for a robust legal and regulatory defense.
• The firm is reportedly planning to argue that intense retail investor demand and high market liquidity in the Indian options market drove its trading choices, not any intent to manipulate prices.

Broader Regulatory and Market Implications

• The case underscores the challenge for regulators worldwide in distinguishing between aggressive arbitrage and actual market manipulation—especially as high-frequency and algorithmic trading become more prevalent.
• SEBI’s investigation and interim actions have led to heightened scrutiny of all market participants engaging in large-scale derivatives trades on expiry days.

Conclusion

Jane Street’s defense centers on the argument that its trades were standard index arbitrage reflecting lawful market-making, while SEBI asserts evidence of patterns designed to move index prices for profit. The final regulatory and legal outcome will likely hinge on detailed trade data, intent, and market impact analysis.

Ref: Jane Street working on its defense against stock market manipulation allegations from Sebi, here’s how