Prime Highlights:
- SEBI removed the trading ban on Jane Street after the firm deposited ₹4,844 crore into an escrow fund.
- Suspected market manipulation via expiry-day options trading continues.
Key Facts:
- July 14 escrow payment: ₹4,844 crore (~$567 million).
- Suspected manipulative profits via derivatives: Estimated ₹36,500 crore.
Key Background
India’s market regulator SEBI had already banned U.S.-based quantitative trading firm Jane Street from trading on Indian exchanges for manipulation of expiry-day index options. This comes in the wake of a SEBI finding that the firm had executed potentially manipulative arbitrage trades in the expiry cycle of derivatives contracts. This was the prime cause of sudden price swings of some constituents of some indices, mainly in the Nifty Bank universe.
According to SEBI’s preliminary findings, Jane Street allegedly took large intraday positions in Bank Nifty stocks and futures to influence the underlying index levels and subsequently profited through index options. These trades reportedly created artificial price movements that disrupted normal market behavior. The alleged strategy resembled a “pump and dump” scheme, disguised as legitimate arbitrage.
Following SEBI’s action, liquidity in India’s derivatives markets saw a sharp decline. Index option turnover dropped by over one-third in just two weeks, indicating the outsized role Jane Street played in the Indian derivatives ecosystem. The disruption triggered discussions around the need for stricter oversight and structural reforms in the options segment.
Following the July 3 directive by SEBI, Jane Street obliged by making a deposit of ₹4,844 crore into a SEBI-regulated escrow account as of July 14. SEBI permitted the company to return to partial trading on this basis. Complete reinstatement remains subject to conditions. The company is still prohibited from trading in cash markets and options until it achieves additional compliance requirements such as strategy-level disclosure.
SEBI has also instructed exchanges to closely monitor Jane Street’s trades going forward. This episode has triggered broader reforms under SEBI’s review, including extending derivatives contract durations and reducing speculative expiry-day trades. The case underscores SEBI’s increasing focus on market integrity, transparency, and the prevention of manipulative arbitrage tactics in India’s fast-growing derivatives market.
