India’s Ban on Jane Street Sparks Debate Over Regulatory Oversight

Indian tax authorities and the Securities and Exchange Board of India (SEBI) are expanding their investigation into the U.S.-based trading firm Jane Street Group. Initially accused of price manipulation in the Bombay Stock Exchange’s Sensex, the firm is now also under scrutiny for alleged tax evasion. This follows SEBI’s seizure of ₹48.43 billion ($570 million) and a ban on four Jane Street-linked entities from market operations due to suspected manipulation in the National Stock Exchange (NSE). The ban has significantly impacted Indian markets, causing a one-third slump in weekly equity index options trading—the world’s largest by volume.

Jane Street is accused of manipulating trades on expiry days to profit from options while distorting the market. According to SEBI, the firm took large long positions in banking stocks and simultaneously shorted index options. Near market close, these trades were reversed, allegedly pushing the index down and yielding profits in options. The complexity of these trades was further concealed through Jane Street’s offshore entities.

This alleged misconduct came to light after a whistleblower, Mayank Bansal, made presentations to SEBI based on Jane Street’s trading patterns. The situation gained further attention after a 2024 New York court case where Jane Street claimed rival Millennium Partners had stolen its Indian market trading algorithms. In an interim order issued on July 3, SEBI noted there was no rational economic explanation for Jane Street’s aggressive activity other than price manipulation.

Legal experts note that while Jane Street can contest SEBI’s jurisdiction on the basis of being a foreign entity, SEBI retains authority when Indian securities are involved. Jane Street has denied the allegations, hired legal representation, and deposited the seized amount into an escrow account pending the outcome of the investigation. According to legal advisors, such complex cases may take between 8 to 24 months to reach a final verdict.

The broader issue raised by the case involves regulatory oversight and retail investor protection. India’s booming options market has seen massive retail participation, with retail traders forming almost half of the market. Many lack deep market knowledge and are often influenced by traders or social media. This has made them vulnerable to high-risk, speculative trades. Experts argue that when institutions like Jane Street participate alongside inexperienced retail traders, the result is an uneven playing field—likened to a bullock cart racing a Formula 1 car.

While SEBI’s surveillance system is capable of detecting anomalies, experts believe the regulator could have intervened earlier. Even if Jane Street is found guilty and fined, redistributing the money to affected investors may prove difficult. The best preventive approach is to detect and curb irregular trading patterns early. SEBI has since introduced new rules to limit weekly expiries, tighten trading spreads, and increase margins to protect investors.

Proving manipulation legally is challenging, as it requires proving intent. Some experts believe Jane Street’s trades could be interpreted as legitimate index arbitrage, complicating SEBI’s case. Jane Street claims its trading was routine arbitrage and has dismissed SEBI’s claims as inflammatory.

The outcome of this case could significantly impact Jane Street’s global reputation, especially if SEBI’s final report mandates disclosures that must be shared with international regulators and investors.