The Indian stock market regulator’s action against Jane Street after the alleged index manipulation came to light has reignited concerns over just how exposed and powerless retail traders remain in the high-stakes world of derivatives trading.
The Securities and Exchange Board of India (SEBI) on July 3 temporarily barred Jane Street from accessing the Indian stock market and also impounded ₹4,840 crore from the US trading firm, which the regulator claimed is the total amount of “unlawful gains” made by it.
In its 105-page order SEBI, in detail, flagged the “manipulative” and “fraudulent” trades by Jane Street that mostly took place in the Nifty Bank Index’s weekly options contracts and its underlying constituents in the cash market.
SEBI alleges that Jane Street manipulated the Bank Nifty index by making aggressive trades in the morning to push up the index, only to reverse those trades later while holding option positions that profited from these moves. Over a 2-year period, they are said to have made ₹43,289 crore in gains from options — a significant chunk of which SEBI believes came through unfair means.
According to media reports, SEBI has widened an investigation into alleged market manipulation to include other indexes and exchanges.
Retail investors at risk
India is the world’s largest derivatives market, accounting for nearly 60% of global equity derivative trading volumes of 7.3 billion trades in April, a Reuters report, quoting the Futures Industry Association said. And India’s retail investors are the most vulnerable to high-risk derivative trading, with 93% of them making losses as per a SEBI study.
“The findings of an earlier research report by SEBI, which inter alia states that 93% of retail investors made losses when trading in the options market, now gain additional context. Such losses, when juxtaposed with the abnormally high profits made by JS Group entities as a result of the prima facie manipulation of the cash, futures and options markets, are reflective of the deep damage that the group has inflicted through their illegal activities,” SEBI said in its order.
This kind of manipulation, if proven true, not only distorts the market but also harms retail investors who trade with trust and limited capital, said Gaurav Goel, Founder & Director at Fynocrat Technologies.
How to curb Jane Street-like fraud
So how can SEBI ensure this doesn’t happen again? Goel has listed four ways:
1. Keep a Close Watch on Derivatives + Cash Market Together
Manipulators often trade in both the stock and the options market to create fake price moves. SEBI should build systems that track both markets together and raise alerts when something looks suspicious.
2. Make Foreign Traders More Transparent
Big foreign firms often trade through complicated structures. SEBI should ensure we know who is really behind those trades, and that they follow Indian rules clearly.
3. Tighten Rules Around Expiry Day
Most of these manipulations happened on weekly expiry days. SEBI should:
⦁ Set limits on how much one can trade on expiry.
⦁ Ask for extra margin on risky positions.
This will make it harder for anyone to move the market just to benefit from options.
4. Act Fast on Unusual Profits
If a firm keeps making huge profits in a specific pattern, SEBI should start asking questions early, not wait for years. Fast action means less damage.
Meanwhile, Harshal Dasani, Business Head at INVasset PMS, said moving forward, SEBI is likely to enhance its monitoring capabilities, focusing not just on end-of-day surveillance but also on real-time pattern recognition. This would allow for faster detection of abnormal trading activities, such as artificial price manipulation in index options, futures, and the cash market, he added.
He also made a case for the introduction of stricter guidelines around expiry-day positioning, particularly regarding the open interest build-up and intra-day market movements, which were key elements in the Jane Street case.
“Furthermore, regulatory bodies could require greater transparency in algorithmic trading strategies and increase the reporting requirements for proprietary trading desks. For PMS and AIFs, SEBI could impose mandatory internal audits to ensure compliance with market conduct standards,” Dasani said, adding that these actions would not only tighten the regulatory framework but also foster a culture of greater accountability among institutional investors, reinforcing the integrity of India’s financial markets.
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