Securities and Exchange Board of India: An interim ex-parte order was passed by the Securities and Exchange Board of India (‘SEBI’) against the Jane Street Group (‘JS Group’) comprising both Indian and its associated entities, alleging unauthorized use of their proprietary trading strategies in Indian options markets to manipulate the settlement prices of indices like BANKNIFTY and NIFTY. Ananth Narayan G (Whole Time Member), held that the Entities had violated Section 12-A(a), 12-A(b), and 12-A(c) of the SEBI Act, 1992 (‘SEBI Act’) and Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), and 4(2)(e) of the Prohibition of Fraudulent and Unfair Trade Practices (‘PFUTP’) Regulations, 2003 by using unfair trading practices. SEBI passed an order to impound Rs 4,843.57 crore of illegal gains and restrained the Entities from accessing the securities market and they were further prohibited from buying, selling, or otherwise dealing in securities, directly or indirectly.
Background:
JS Group LLC was a global proprietary trading firm in the financial services industry that was established in the year 2000, employed more than 2,600 people in five offices across the United States, Europe, and Asia and trades in 45 countries. In April 2024, SEBI carried out an analysis based on media reports referencing a legal dispute involving JS Group for alleged unauthorized use of their proprietary trading strategies in Indian markets. SEBI initiated preliminary examination into trading activity of Jane Street and associated entities to ascertain any market abuse.
SEBI then issued a circular announcing a series of policy steps to address what was seen as overtrading in index options on expiry day and observed an abnormally high or low volatility on weekly index options expiry days. The investigation highlighted that JS group was prima facie engaged in activities in violation of SEBI PFUTP regulations. On 17-1-2024, an expiry day in BANKNIFTY index options, SEBI observed manipulative activity JS group, which consistently ran the largest risks in ‘cash equivalent’ terms in F&O, especially on index option expiry days.
Further, the detailed analysis of the trades revealed the existence of a strategy (“Intraday Index Manipulation” Strategy) which was deployed by the JS group on 15 out of 18 days covered in the Order. A different strategy (“Extended Marking the Close” Strategy) was observed on the remaining 3 days, and the latter strategy was also found to have been deployed on 3 other days post the examination period in NIFTY index options, during May 2025. SEBI observed a pattern of large, strategically timed trades that appeared to have been planned to reverse the natural price discovery flow. These trades were executed on weekly and monthly expiry days of index derivatives and displayed a correlation between deliberate loss-making positions in the cash and future segments and substantial gains in the options market.
As advised by SEBI, on 6-2-2025, the National Stock Exchange (‘NSE’) issued a cautionary letter to Jane Street Singapore (P) Ltd. and its related entity, JS Group Investments (P) Ltd., where the letter noted that the JS group had been consistently engaging in trading patterns that raised serious concerns over market integrity, particularly around the expiry of index derivatives.
Analysis and Decision:
SEBI observed that there was no economic rationale that could account for this sudden burst of large and aggressive activity towards the close on expiry day, other than the intent to manipulate the price of securities and index benchmark, so as to engineer a favourable expiry for the even larger positions that the JS Group was running in index options. SEBI further submitted that the large and aggressive trades were not executed in a vacuum or for ordinary hedging or arbitrage operations, but rather for an intricate and egregious manipulation of the prices of securities and benchmark indices for their own illegal gains, to the detriment of several lakhs of small market participants.
SEBI emphasised that the entity incorporated in India, executed intra-day trades in the cash segment during the examination period and the two FPIs forming part of the JS Group took large positions in futures and options segment. Furthermore, the intraday cash market transactions undertaken by the Indian entity consistently resulted in significant losses. SEBI noted that the incorporation of the said company in India enabled the JS group to circumvent the regulatory prohibition on cash market transactions applicable solely to Foreign Portfolio Investors (FPIs), thereby allowing them to execute the manipulative scheme without directly violating the FPI Regulations.
SEBI relied on SEBI v. Rakhi Trading (P) Ltd, (2018) 13 SCC 753, wherein it was held that dealings in the stock exchange were governed by the principles of fair play and transparency. Since trading was always aimed at making profits, if one party consistently incurred losses particularly through preplanned and rapid reverse trades the transactions were not considered genuine, as they constituted an unfair trade practice. SEBI held that the series of trades executed by JS Group demonstrated a pattern which, when viewed in its totality, indicated a prima facie intent to take unfair and undue advantage of the market structure.
SEBI emphasised that the irrational loss was arising from trades that enabled JS group to benefit immensely and illegally from the even larger positions that they were creating or carrying in index options and therefore, this ‘loss’ could only be viewed as a mala fide cost incurred by the JS group to perpetrate their prima facie manipulative and fraudulent scheme.
SEBI noted that at least on 21 days, the JS Group had prima facie engaged in illegal manipulation of the securities that comprised the BANKNIFTY and NIFTY indices, thereby vitiated market fairness and integrity, and illegally benefitted from their trading activities and positions in the index options markets. SEBI further submitted that JS Group had made a total profit of Rs 36,502.12 crore across all segments, where they earned Rs 43,289.33 crore from index and stock options but lost Rs 7,208 crore in stock futures, Rs 191 crores in index futures, and Rs 288 crores in cash equities.
SEBI held that JS Group entities, because of prima facie manipulation of the cash, futures, and options markets, reflected deep damage inflicted through their illegal activities. While making profits and using genuine strategies like arbitraging, hedging, or directional positioning was not objectionable, the use of egregious manipulative practices to influence indices and artificially profiteer was unacceptable and illegal. SEBI further observed that failing to take immediate action pending investigation would have caused irreparable damage by denting market confidence, allowing continued manipulation, and rendering post-investigation measures irrelevant.
SEBI held that the Entities violated Section 12-A(a), 12-A(b) and 12-A(c) of the SEBI Act and Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), and 4(2)(e) of the PFUTP Regulations by indulging in a fraudulent or an unfair trade practice in securities markets. SEBI highlighted the need to maintain the integrity of the securities market, as there had been an egregious distortion of integrity and fairness where multiple liquid stocks with high retail participation had been manipulated to facilitate manipulation of the index options market, resulting in massive profits for manipulators at the cost of other participants and retail traders.
SEBI passed the interim order while exercising its power conferred under Sections 11(1), 11(4), 11-B(1) and 11-D read with Section 19 of the SEBI Act and ordered to impound Rs 4,843.57 crore, the total unlawful gains earned by the JS Group, jointly and severally, by opening an escrow account in a Scheduled Commercial Bank in India with a lien marked in favour of SEBI, where the amount would not release without SEBI’s permission. Further, SEBI restrained the Entities from accessing the securities market and prohibited them from buying, selling, or dealing in securities, directly or indirectly.
[In the matter of Index manipulation by Jane Street Group, WTM/AN/MRD/MRD-SEC-3/31516/2025-26, decided on 3-7-2025]