Jane Street Manipulation | SEBI Interim Order & Investigation details (Summary)

Page 1: Introduction and Background of Allegations

This interim order, issued by the Securities and Exchange Board of India (SEBI) on July 3, 2025, concerns alleged index manipulation by entities collectively referred to as "Jane Street Group" or "JS Group"¹¹¹¹. The entities involved are JSI Investments Private Ltd., JSI2 Investments Private Ltd., Jane Street Singapore Pte. Ltd., and Jane Street Asia Trading Ltd.². The investigation was initiated in April 2024, based on media reports concerning Jane Street's proprietary trading strategies in Indian options markets³³.

SEBI's preliminary examination, which included a request to NSE to analyze JS Group's trading activity, revealed concerns about market abuse⁴⁴⁴⁴. By February 2025, a team of officials prima facie noted that JS Group appeared to be violating SEBI PFUTP regulations⁵. Consequently, NSE, under SEBI's instructions, issued a caution letter to Jane Street Singapore Pte Limited and JSI Investments Pvt Ltd. on February 6, 2025, advising them to refrain from large cash-equivalent positions and certain trading patterns⁶. However, despite this caution and their own commitments, the Jane Street Group was observed to continue running very large 'cash-equivalent positions in index options as late as May 15, 2025⁷.

The order highlights the interrelated nature of derivative prices and their underlying stocks or indices, with arbitrage opportunities typically keeping these prices in tandem^888888888. A key observation is that on expiry days, volumes and participation in index options are significantly higher than in the underlying constituent stocks and futures⁹⁹⁹⁹. For instance, on January 17, 2024, BANKNIFTY options cash equivalent traded turnover was 353 times that of its 12 constituent stocks in the cash market¹⁰. This disparity allows for potential manipulation, where influencing the underlying stock and index can lead to profits from index options¹¹. Market participants in index options often rely on the underlying index's signals without directly participating in the cash or futures markets¹².

The investigation focused on identifying impugned trading days by mapping profit-loss across all segments, disaggregated analysis of index options instruments, and day-wise profit calculation for BANKNIFTY options^{131313131313131313}. The primary period of examination was from January 1, 2023, to March 31, 2025¹⁴. The data showed that profits from Index Options alone accounted for over INR 43,289.33 Crore, while losses in stock futures, index futures, and cash cumulatively amounted to INR 7,687.21 Crore¹⁵. The analysis identified two main manipulative strategies: "Intra-day Index Manipulation" and "Extended Marking The Close"¹⁶.

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Page 2: "Intra-day Index Manipulation" Strategy - January 17, 2024 Sample Analysis

The "Intra-day Index Manipulation" strategy is analyzed in detail using January 17, 2024, as a sample day¹⁷. On this day, BANKNIFTY experienced a sharp drop at open¹⁸. The JS Group's trading pattern involved two distinct patches¹⁹.

Patch I (09:15 AM - 11:46:59 AM): Aggressive Buying and Short Position Building

During Patch I, the JS Group aggressively purchased significant long positions worth INR 4,370.03 crores in BANKNIFTY constituents across cash and stock futures markets20. They were the single largest net buyer, contributing 15-25% of the entire market's traded value in most scrips (excluding HDFCBANK)21. This aggressive buying, often with orders placed at or above the Last Traded Price (LTP), aimed to push up or support the price rise in these stocks22222222. This upward pressure on constituents directly supported or raised the BANKNIFTY index232323232323. For example, on January 17, 2024, the BANKNIFTY index rose by over 600 points from 46,573.93 to 47,176.97 during the initial 8-minute patch24.

Simultaneously, while misleading other market participants with artificially inflated index levels, JS Group built large bearish positions in the more liquid BANKNIFTY index options²⁵²⁵²⁵. They effectively sold BANKNIFTY via index options by buying cheap Put options and selling expensive Call options²⁶. During the first 8 minutes, JS Group generated an effective cash equivalent short BANKNIFTY exposure of INR 8,751 crores through options, which was over 15 times their long position in the component cash and futures market²⁷. This indicates that the aggressive buying in the underlying market was specifically designed to create favorable pricing for their much larger options positions^28282828.

Patch II (11:49 AM - 15:30 PM): Aggressive Selling and Profit Realization

After establishing their index option positions, the JS Group systematically sold off their holdings in the underlying constituents (cash and futures) and BANKNIFTY Index futures during Patch II29. They were the single largest net seller across these segments30. This selling was aggressive, with a disproportionately high number of sell orders placed at or below the LTP, contributing to the downward price movement of individual stocks and the BANKNIFTY index313131313131.

The JS Group incurred an intraday loss of INR 61.6 crores from their cash and futures trading during this reversal³². However, this loss was more than offset by substantial profits from their much larger BANKNIFTY index options positions, which gained value as the index declined^{333333333333333333}. This precision in timing and the convergence of trading reversal, downward LTP impact, and maximized options profitability suggests a premeditated and carefully executed manipulative scheme³⁴. The trading patterns on January 17, 2024, and 14 other days, consistently showed JS Group booking profits in index options while incurring losses in underlying cash and futures, indicating no standalone economic rationale for the latter trades^{353535353535353535}.

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Page 3: "Extended Marking The Close" Strategy and Continuing Violations

"Extended Marking The Close" Strategy:

This strategy was observed on July 10, 2024, and two other BANKNIFTY expiry days36. Unlike the two-patch "Intra-day Index Manipulation," this strategy concentrates trading activity almost entirely in the final phase of the trading session37. "Extended marking the close" involves aggressively placing large buy or sell orders in the final moments to influence the closing price of a security or index to the entity's advantage38. This is particularly concerning on derivative expiry days as the closing price directly impacts settlement values39.

On July 10, 2024, the BANKNIFTY index experienced a sharp decline in the final 45-60 minutes, indicative of aggressive sell orders by JS Group in index constituents and their futures⁴⁰. This artificial downward pressure aimed to push down the expiry settlement price of BANKNIFTY, benefiting JS Group's pre-existing large short Call or long Put positions^41414141. During the 14:30:00 to 15:30:00 patch, JS Group sold INR 163.33 Cr in cash segment, INR 1,900.57 Cr in single stock futures, and INR 735.86 Cr in Bank Nifty index futures, totaling approximately INR 2,800 crores of aggressive intervention⁴². This aimed to engineer a soft close for their INR 44,153.87 crores of effective bearish cash-equivalent positions in BANKNIFTY index options⁴³.

The Group's activity remained muted earlier in the day but spiked dramatically from 14:30, especially in stock futures, where their traded volume accounted for over 35% of the market-wide total traded value in the last 60 minutes⁴⁴. This concentration near market close, particularly in scrips that determine the index, suggests a deliberate attempt to steer the index closing value⁴⁵. LTP analysis confirmed aggressive selling below LTP across multiple heavy-weight stocks, contributing to the downward price movement of the index^46464646.

Continuing Violation & Disregard for Regulatory Caution:

Despite the caution letter issued by NSE on February 6, 2025, which warned against large delta positions and trading patterns that raised concerns about market integrity, JS Group continued to engage in similar activities47474747. On May 15, 2025 (a NIFTY weekly options expiry day), JS Group was observed running very large effective cash-equivalent long positions in NIFTY index options and heavily intervening in NIFTY futures and NIFTY constituent stock futures at close48.

This bullish variant of the "extended marking the close" strategy involved JS Group undertaking trades to push the NIFTY index upward during the final 116 minutes of trading^49494949. Between 13:26:00 and 15:30:00, their stock futures trades surged to INR 4,910.96 Cr, representing a disproportionately large share of market-wide traded value in several key NIFTY stocks⁵⁰. This aggressive buying, often at or above LTP, aimed to create upward price pressure and manipulate the index levels higher at and around expiry to maximize profits from their larger NIFTY index options positions^51515151. The net NIFTY delta exposure shifted from negative INR 17,125.75 Cr at open to positive INR 38,297.01 Cr at close on May 15, 2025, a swing of over INR 55,422.76 Cr, with the steepest climb in the last hour⁵².

This behavior, occurring after explicit regulatory advisories, demonstrates a clear disregard for compliance⁵³. The pattern on July 10, 2024, and two other Bank Nifty expiry days, as well as on May 15, 2025, and two other Nifty options expiry days, collectively involved JS Group making total profits of INR 560 crores and INR 370 crores respectively through these strategies^54545454.

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Page 4: Alleged Violations and Computation of Illegal Gains

Alleged Violations of SEBI Act and PFUTP Regulations:

SEBI prima facie finds that the trading patterns employed by the JS Group violate regulations

$4\left(2\right)\left(a\right)$ and $4\left(2\right)\left(e\right)$ of the PFUTP Regulations, and the schemes are a fraudulent device prohibited by section 12A of the SEBI Act and regulations $3\left(a\right)-\left(d\right)$ and $4\left(1\right)$ of the PFUTP Regulations^55555555.

• Regulation 4(2)(a): Prohibits knowingly indulging in an act that creates a false or misleading appearance of trading in the securities market⁵⁶. SEBI contends that JS Group's aggressive buying and subsequent reversal in Patch I and II (Intra-day Index Manipulation) created such a misleading appearance, enticing unsuspecting traders in index options to trade at artificial prices^{57575757575757575757}.

• Regulation 4(2)(e): Prohibits any act or omission amounting to manipulation of the price of a security, including influencing or manipulating the reference price or benchmark price of any securities⁵⁸. The extensive and aggressive trading in BANKNIFTY and NIFTY constituent stocks and futures, explicitly designed to push up or pull down the index, falls under this violation^{59595959595959595959595959595959}.

SEBI asserts that there is "little or no economic rationale" for such large and aggressive intraday trading activity in stocks and futures on a standalone basis, especially given the consistent trading losses incurred by JS Group in these segments (INR 199.7 crores across 15 days of "Intra-day Index Manipulation")⁶⁰. These losses are viewed as a "mala fide cost" incurred to perpetrate the manipulative and fraudulent scheme⁶¹.

The argument is further buttressed by the "preponderance of probability" that the sudden burst of large and aggressive activity, particularly towards the close on expiry days (Extended Marking the Close), had no other intent than to manipulate the price of securities and index benchmarks to engineer a favorable expiry for the even larger positions the group held in index options⁶².

The order also highlights that JSI Investments Private Limited, an Indian entity of JS Group, undertook intraday cash market transactions that consistently resulted in losses⁶³. This entity's incorporation in India appeared to circumvent the FPI Regulations, which prohibit FPIs from engaging in intraday trades in the cash market, thereby enabling the manipulative scheme⁶⁴. While FPIs like Jane Street Singapore Pte Ltd. and Jane Street Asia Trading Ltd. (who took large positions in futures and options) are permitted to deal in derivatives, the coordinated activity across the JS Group, including the Indian entity's loss-making cash market trades, is seen as a singular manipulative scheme^65656565.

The order cites the Supreme Court's ruling in SEBI vs. Rakhi Trading Pvt. Ltd. (2018), which held that "Nobody intentionally trades for loss" and "An intentional trading for loss per se, is not a genuine dealing in securities."⁶⁶. The Supreme Court also stated that if manipulation is established, it necessarily follows that investors were induced to buy or sell⁶⁷. SEBI suggests that the massive profits made by JS Group in index options, juxtaposed with the losses incurred in cash and futures, potentially account for a part of the findings in SEBI's research report (September 23, 2024) that 93% of over 1 crore individual F&O traders incurred losses from FY22 to FY24⁶⁸.

Computation of Illegal Gains:

The total unlawful gains earned by the JS Group from the alleged violations on the impugned days (21 days identified) amounts to

INR 4,843,57,70,168/- (Four Thousand Eight Hundred Forty Three Crore Fifty Seven Lakh Seventy Thousand One Hundred and Sixty Eight Rupees only)^69696969. SEBI states that when computing these illegal gains, the losses made by the JS Group in the cash/futures market (incurred as part of the manipulative device) will not be set off, as affirmed by the Hon'ble SAT in Immix Trade Pvt Ltd. and Ors. v. SEBI (2023)^70707070.

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Page 5: Need for Interim Directions and Order

Need for Interim Directions:

SEBI emphasizes the necessity of interim measures based on three conditions: a prima facie case, irreparable injury if interim directions are not passed, and a balance of convenience in favor of passing such directions71.

• Prima Facie Case: SEBI asserts that the detailed analysis demonstrates a prima facie engagement in illegal manipulation of BANKNIFTY and NIFTY indices on at least 21 days, violating various sections of the SEBI Act and PFUTP Regulations⁷².

• Irreparable Injury:

  • Integrity of the Market: The manipulation of major indices like BANKNIFTY, aided by JS Group's "immense trading, financial and technological prowess," constitutes an "egregious distortion of integrity and fairness in the securities market"⁷³. This is an unusual case involving manipulation of multiple liquid stocks with high retail participation to manipulate index options⁷⁴. The abnormally high profits of JS Group compared to the losses of 93% of retail investors in F&O during FY22-FY24 highlight the "deep damage" inflicted⁷⁵.

  • Possibility of Diversion of Illegal Gains: Two of the four entities are registered FPIs incorporated overseas (Singapore and Hong Kong)⁷⁶. JS Group's FPIs primarily engage in short-term High-Frequency Trading (HFT) and hold significant India Government Securities as liquid margin for F&O trading, not for long-term investments^77777777. Given that FPIs can repatriate profits and exit Indian markets, there is a justifiable concern about the enforceability of disgorgement orders if interim measures are not taken^{787878787878787878}. The net profits booked by JS Group FPIs (INR 32,681 crores) are significantly higher than their average assets held in India, indicating repatriation of profits⁷⁹.

• Urgency: The JS Group's "cynical violation" and "clear disregard/defiance" of NSE's caution letter in February 2025 by continuing manipulative trading patterns in May 2025 demonstrates that they are "not a good faith actor" and cannot be trusted⁸⁰. Immediate action is crucial to protect investors and market integrity^81818181.

• Balance of Convenience: SEBI argues that impounding illegal gains and restraining the entities is justified⁸². If the entities can prove their innocence, the impounded funds will be released. However, if interim directions are not passed and illegal gains are diverted, it would cause "severe and irreparable damage" to market integrity, investor protection, and confidence⁸³.

Order:

Based on the prima facie findings, SEBI has issued the following interim ex-parte directions84:

1. Impounding of Unlawful Gains: A total of INR 4,843,57,70,168/- earned by the JS Group from the alleged violations shall be impounded, jointly and severally⁸⁵. The entities are directed to deposit this amount into an escrow account in a Scheduled Commercial Bank in India, with a lien marked in favor of SEBI⁸⁶.

2. Restraint from Securities Market: The entities are restrained from accessing the securities market and prohibited from buying, selling, or otherwise dealing in securities, directly or indirectly⁸⁷.

3. Bank Account Restrictions: Banks holding accounts of the entities are directed to prevent debits without SEBI's permission, except for compliance with this order⁸⁸. Credits are allowed, and debits for amounts exceeding the impounded sum are also permitted⁸⁹.

4. Custodial and Demat Account Restrictions: Custodians and Depositories are directed to ensure no debits are made to the assets or demat accounts of the entities without SEBI's permission^90909090.

5. Asset Disposal Prohibition: Entities shall not dispose of or alienate any assets/properties in India without SEBI's prior permission until the unlawful gains are credited to the escrow account⁹¹.

6. Inventory of Assets: Entities must provide a full inventory of all their assets in India within 15 days⁹².

7. Derivative Position Closure: Entities with open derivative positions can close them out within 3 months or at contract expiry, whichever is earlier, and can settle pre-order transactions⁹³.

8. Cessation of Directions: Directions (62.2, 62.3, 62.4, 62.5, 62.7, 62.8, 62.10) will cease upon compliance with the impounding direction (62.1)⁹⁴.

9. Cease and Desist: The entities must cease and desist from any fraudulent, manipulative, or unfair trade practices⁹⁵.

10. Monitoring by Stock Exchanges: Stock Exchanges are directed to closely monitor JS Group's future dealings to prevent manipulative activity during the ongoing investigation⁹⁶.

The order is an interim measure, and the entities have 21 days to file their reply/objections and request a personal hearing⁹⁷. This order does not prejudice SEBI's right to take further action⁹⁸.

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