SEBI Orders Jane Street Group to Return Billions for Market Manipulation

The Securities and Exchange Board of India (SEBI) has issued an interim order concerning index manipulation by the Jane Street Group. The order mandates the recovery of a substantial sum, identified as one of the largest illegal gains ever made by the group, amounting to Rs 4,843.57 crore.

JSI Investments Pvt Ltd, JSI2 Investments Pvt Ltd, Jane Street Singapore Pte Ltd, and Jane Street Asia Trading Ltd. SEBI's findings indicate that the group employed a profit-maximizing scheme to manipulate the market, generating significant profits in index options while incurring smaller losses in cash and futures segments.

SEBI's 105-page order details a comprehensive investigation into the manipulative trading practices of the Jane Street Group, particularly around the weekly expiry of index options on the National Stock Exchange (NSE). The investigation was prompted by media reports in April 2024, which highlighted legal disputes related to Jane Street's proprietary strategies in the Indian markets.

The investigation revealed that the group executed a highly coordinated and strategic manipulation of the BANKNIFTY index on expiry days. A notable example involved the purchase of over Rs 4,370 crore worth of Bank Nifty constituent stocks and futures early in the trading session on January 17, 2024. Later, the group reversed these purchases, aggressively selling off its positions and driving down the BANKNIFTY index. This action significantly increased the profitability of previously acquired put options while causing call options to decline in value.

This strategy, described as "Intra-day Index Manipulation," was not an isolated incident. It was repeated on multiple expiry days, impacting market sentiment and potentially misleading numerous retail investors who relied on manipulated price signals. The group also engaged in other strategies, including selling futures and holding short positions, as well as buying futures and holding long positions in options, across various expiry days.

SEBI determined that the group's actions resulted in illegal profits of Rs 4,843 crore across 21 days. These profits are to be held in escrow with SEBI, with restrictions in place to prevent future violations. Furthermore, the order noted that the Jane Street Group entities continued to employ these high-risk and market-distorting strategies despite receiving caution letters from the NSE and making commitments to avoid certain trading behaviors.

Given the severity of the violations and the ongoing disregard for regulatory warnings, SEBI concluded that immediate action was necessary to safeguard market integrity and protect investor interests. Consequently, the regulator has directed the impounding of the illicit gains, totaling Rs 4,843.57 crore, to be recovered jointly and severally from the involved entities.