SEBI Shuts Out Jane Street Over Market Manipulation

In the high-stakes world of equity derivatives, Jane Street has always played to win. But this time, the house, specifically India’s securities watchdog, called foul. Getting dinged to the tune of ₹4,841 crore (about $570 million), the U.S.-based high-frequency trading firm was barred by SEBI from India’s markets on July 4 for alleged manipulation that regulators say crossed the line. That’s not just a penalty. It’s the harshest action ever taken by SEBI against a foreign trading outfit. For Jane Street, a firm that calls itself a collective of “puzzle solvers,” the allegation isn’t just a regulatory hurdle. It’s a direct hit to its model of arbitrage-fueled global trading and a potential test case for how aggressive quant strategies sit with fast-evolving emerging markets.

From Quiet Entry to $5 Billion Gains

Jane Street’s India chapter began rather quietly in December 2020, when it registered its first domestic entity. It didn’t stop there. Two more group entities operated out of Hong Kong and Singapore, all collectively ranking in nearly $5 billion in profits between January 2023 and March 2025, mostly from equity options trading. Things stayed under the radar until April 2024, when a U.S. court hearing between Jane Street and rival Millennium Management revealed something eye-popping: the firm had made $1 billion in India options in just 2023 alone. That juicy nugget lit a fire under SEBI, which soon started digging into the firm’s trading patterns.

Fast forward to July 2025, and the regulator's final straw seems to have been Jane Street’s outsized trades in Bank Nifty, India’s benchmark banking index. According to SEBI, the firm bought large volumes of banking stocks and futures in the morning session to prop up the index price, while simultaneously betting against it through short positions in index options. Once the price was up and retail investors piled in, Jane Street allegedly dumped those same stocks to trigger a drop, cashing in on the falling options. SEBI called it a textbook case of manipulation. Jane Street called it arbitrage.

Boon for Some, Burn for Most

The Jane Street drama didn’t come out of nowhere. Over the last five years, India has gone from a bit player to the biggest equity derivatives market in the world. Daily turnover hit $6 trillion in February 2024 before cooling to around $3 trillion after SEBI introduced new rules. Retail investors, many new to the market, have been chasing quick wins through weekly options, often against sophisticated global players with deep tech, speed, and capital.

And the results? Not pretty. SEBI’s updated 2024 study showed that 93 percent of retail investors lost money on derivatives in the three years ending March 2024. That added pressure on regulators to act. First, they cut the number of weekly expiries. Then, they hiked margin requirements on expiry day trades. And finally, they pulled the trigger on Jane Street.

What Jane Street Is Saying Now

The firm didn’t take the hit lightly. In an internal email sent to employees, Jane Street said it was “beyond disappointed” and criticized SEBI’s order as “extremely inflammatory.” The trading strategies, the firm argued, were nothing more than “basic index arbitrage”, a common practice used to keep prices of related instruments in sync. Jane Street also pushed back on the accusation that it ignored regulatory warnings. It claims to have met with SEBI and exchange officials multiple times, adjusted its trading behavior based on those discussions, and made ongoing efforts to stay in touch. Since February, though, those efforts were “consistently rebuffed,” the email noted.

As for what’s next, Jane Street is reportedly looking to bring in Indian legal counsel and may appeal the ban through the Securities Appellate Tribunal. No law firm has been hired yet, but sources say the firm is preparing to go the distance.

More Cracks in the Fast Lane?

SEBI Chair Tuhin Kanta Pandey has hinted that Jane Street might be a one-off, or at least close to it. The regulator is tightening surveillance systems to detect advanced strategies that could manipulate the market, but Pandey stated he doesn’t expect a flood of similar cases. Still, the firm’s fate could set a new precedent for how India deals with global quant powerhouses. Meanwhile, others are watching closely. Big players like Citadel Securities, IMC Trading, and Optiver are also active in India’s market. With regulations shifting and profits tightening, their algorithms may need a bit more caution and a lot more compliance.

Final Thought

For now, Jane Street remains locked out of one of its fastest-growing trading arenas. Whether it’s eventually let back in, or held up as a cautionary tale depends on how convincing its defense will be. One thing is clear: India’s regulators are no longer just spectators in the global trading game. And for firms chasing alpha in emerging markets, the message is loud and clear: don’t outsmart the house, especially when the house is watching. Stay ahead of the curve with sharp insights on finance, tax, and compliance. Subscribe to the MYCPE ONE Insights newsletter today.