SEBI (temporarily) bans Jane Street

On July 3, 2025, SEBI temporarily banned the hedge fund Jane Street from the Indian markets, saying it had manipulated index options, netting hundreds of crores in profits — unfairly, and repeatedly.

This is huge. Jane Street is no ordinary entity. It’s one of the world’s most prominent proprietary trading firms. It’s famed for its secrecy, its math-driven culture, and elite talent pool drawn from top academic institutions. It brings all of this to bear in markets across the world. That is who SEBI has now gone after.

But what exactly did Jane Street do? What was this strategy? Why did SEBI come down so hard?

Let’s walk through everything, step by step.

How it all started

It all began in a New York courtroom.

In early April 2024, Jane Street had filed a lawsuit against another hedge fund — Millennium Management. It accused Millennium of stealing a proprietary, multi-billion dollar trading strategy. Specifically, the strategy involved trading index options in Indian markets.

The two Wall Street giants quickly settled the case. But the case caught everyone’s attention.

Until then, nobody really knew what Jane Street was doing in India. And they definitely didn’t know that Jane Street’s involvement went to a level where they felt the need to sue someone over a “secret” strategy. What was so special about this strategy? Why did Jane Street seem to think it was worth billions?

SEBI saw that lawsuit too. And the fact that the strategy in question involved Indian index options — something SEBI actively regulates — made it impossible to ignore.

SEBI starts digging

SEBI started studying the matter in April 2024. They went through Jane Street’s trading data, looking especially at expiry days — when weekly index options like BANKNIFTY would settle.

There were many trades Jane Street would make. But among them, it found one repeated pattern:

• Jane Street would buy and sell the stocks that made up BANKNIFTY aggressively.
• On the same days, they made massive profits in BANKNIFTY options — especially in those that expired the same day.
• The two, it seemed, were linked. They would buy stocks aggressively to push the index up. At the same time, they would bet against the index using cheap options. Then, they would dump the stocks. As the index fell, they’d book their profits.

This all looked like a coordinated, pre-planned strategy. So SEBI expanded its investigation. It reached out to NSE, asking for the full set of data for expiry days. That’s when SEBI saw just how perfectly Jane Street’s stock and options trades lined up on expiry days, when things escalated.

Eventually, SEBI asked NSE to formally look into these patterns as well. NSE issued a formal letter of caution to Jane Street in February 2025, asking them to refrain from large expiry-day trades, and the specific patterns that SEBI found suspicious.

Jane Street responded, claiming the trades were legitimate, and based on “proprietary strategies”.

SEBI didn’t buy that — especially not after seeing the data. In all the trades the firm made, there was a strand where the trading patterns just seemed too consistent, too perfectly aligned, and too profitable, in a way that suggested Jane Street had found a loophole, and was exploiting it repeatedly.

The investigation deepens

SEBI went through a long stretch of Jane Street’s trading activity — 18 different expiry days between October 2023 and March 2025. One particular day stood out: January 17, 2024. This was Jane Street’s single most profitable day, where the fund earned a staggering ₹734.93 crore from index options alone.

The kind of number demanded a closer look.

The day seemed to showcase the full version of what the regulator later called the “Intraday Index Manipulation” strategy — a pattern that re-appeared on 15 out of the 18 days it was looking at.

On that day, the market had opened on a weak note. HDFC Bank’s earnings seemed disappointing, the night before. But then, for a couple of hours, the BANKNIFTY index bounced back sharply, only to crash again.

Jane Street’s own trades, SEBI realised, lined up exactly with that reversal. We’ll get to that shortly. But first, you need to understand two key ideas:

• The first has to do with the BANKNIFTY. The value of the BANKNIFTY index depends entirely on the prices of its twelve underlying bank stocks. Some of those, like HDFC and ICICI Bank, make up more than a quarter of the index. If you can push just those stocks up, the entire index goes up. Push them down, and the index drops. That link — between the stocks and the index — is exactly what Jane Street exploited.
• The other key detail is the importance of the expiry day. On that day, any position that hasn’t been closed or squared off is settled based on where the index trades during the last half hour of the day. And so, options are extremely sensitive to moves in the underlying index. On these days, the options market goes wild. Volumes explode. For example, on Jan 17, BANKNIFTY options saw around ₹10,000 crore worth of premium turnover — 353 times the value of the trades in the actual stocks themselves.

So What Did Jane Street Do?

On Jan 17, Jane Street did two things, one after the other. Together, they tell the full story of the strategy that earned SEBI’s ire.

Part I: The rise (9:15 AM – 11:47 AM)

That morning, Jane Street started buying large quantities of BANKNIFTY stocks — Axis Bank, Kotak, ICICI, and others — in both the cash and futures markets. Their orders were so aggressive that they pushed prices up, leading to a temporary rally in the BANKNIFTY index.

SEBI found that in many of these stocks, Jane Street’s buying made up 15–25% of total market volume over that time. At that very time, though, they were also betting on the index falling:

• They were selling call options, or bets that the index won’t rise
• They were buying put options, or bets that the index will fall

Together, this meant Jane Street was positioning itself for a fall, while whipping up the illusion of a recovery for the rest of the market. This is what SEBI calls deceptive.

Part 2: The fall (11:49 AM – 3:30 PM)

At this point, they flipped the script. They started selling all those banking stocks and BANKNIFTY futures they'd bought earlier.

It was expiry day. The smallest movements in the index had an outsized impact on the value of some options — especially the ones that were At The Money (ATM).

An ATM option is one where the strike price — the level at which the contract becomes profitable — is very close to the current price of the index. These are the most sensitive to last-minute moves. There’s no time left, and they’re at the very edge of profitability — just a few points can decide whether they end up worth lakhs or expire worthless.

When Jane Street dumped those stocks in the final hours of the session, it pushed the index way down. Their bets had come true. The put options they bought were suddenly exploding in value. They went from being borderline worthless to deep in-the-money, all in the space of an hour or two.

And since they held a lot of these, the payoff was huge. Those put they bought became massively profitable. The calls they sold became worthless. All told, on that one day, Jane Street made ₹734.93 crore in net profits from options alone.

But the thing is, Jane Street wasn’t lucky. It didn’t get a prediction right. It made its own luck, in a sense. It created the very market move that it had bet on.

That move — where someone trades heavily in the last 30 minutes to push the index in a certain direction — is called “marking the close”. It is globally considered market manipulation, and is illegal.

Across all 18 days that SEBI studied, their options profit added up to roughly ₹43,000 crore, while losing ~₹7,500 crore in the other segment while implementing this strategy.

Why was that wrong?

Here’s SEBI’s view: Jane Street was shaping the market. Jane Street’s trades were so large, and placed so aggressively, that they moved prices on their own. In many of the BANKNIFTY’s constituent stocks — like Kotak, Axis, ICICI — Jane Street alone accounted for a fifth of all trading activity in short pockets of time. That was enough to push the market wherever Jane Street wanted it to go.

When they started aggressively buying those stocks that morning, they had an agenda: make other traders think more demand was coming in. Prices started rising, pushing up the index.

That was the setup. Behind the scenes, Jane Street was aggressively betting that the index would fall by the end of the day.

As others bought into the idea that the index would keep rising, Jane Street reversed their trades, dumping the same stocks they’d just bought, pushing the index back down. They bet on an outcome and then forced it to happen.

In SEBI’s eyes, that’s the wrong way to win a bet.

The aftermath

SEBI’s banned Jane Street from the Indian markets, for now. They’ve also impounded ₹4,840 crore, money that it thinks definitely came from the strategy.Here’s what Nithin thinks about this entire issue: SEBI’s move was necessary — but it also shows how heavily the market leans on firms like Jane Street. They drive nearly half of all options volumes. When someone of this scale pulls back, the entire market feels the tremors.

Other market actions by SEBI

Meanwhile, SEBI is actively trying to reduce the volatility caused by weekly options, especially on expiry days. In November 2024, they introduced rules that limited weekly options trading to just two major indices—NIFTY and SENSEX—and added extra margins on expiry day, along with other risk-control measures.

Then in May 2025, SEBI brought in another set of reforms. These included a new way of calculating market open interest using option delta. They also raised position limits for individual firms. The goal was to reduce the risk of any single participant impacting the market too much.

Together, these steps reflect SEBI’s broader push to keep expiry-day chaos in check and make the options market more resilient.