The 3 July order of the Securities and Exchange Board of India (Sebi) draws on detailed market data, highlighting patterns in Bank Nifty trades, price impacts and rapid reversals to argue Jane Street’s conduct crossed the line from aggressive arbitrage into manipulation.
Experts believe Jane Street could counter Sebi’s allegations with transparent trading logic and data. It might also rely on the regulatory dialogue after repeated warnings. They believe this case could redefine the legal threshold of “manipulative intent” under Indian law and the razor-thin boundary between lawful arbitrage and market abuse.
On 3 July, the regulator barred four entities of the US-headquartered quant trading firm from accessing the securities market, pending the deposit of alleged illegal gains into an escrow account.
The regulator’s 105-page order meticulously details how Jane Street allegedly exploited expiry-day dynamics in index derivatives—building large options positions and then moving prices in the cash and futures markets to benefit its options book.
According to Sebi, the firm’s conduct, particularly in Bank Nifty trades, involved rapid reversals and price impacts that amounted to “prima facie manipulation.”
On 17 January 2024, Jane Street’s trading in Bank Nifty stocks and derivatives was unusually high and singularly dominant, displaying a coordinated pattern.
According to Sebi’s interim order, Jane Street’s total gross traded value in cash, stock futures, and Bank Nifty index futures surged to ₹10,657 crore—five times the previous day’s level.
During the morning session, Jane Street was the largest net buyer, purchasing ₹4,370 crore, far outpacing others. Its trades accounted for 15-25% of market value in key stocks, with a notably aggressive price impact.
Jane Street’s defence
Jane Street, for its part, has pushed back forcefully. In an internal memo circulated after the order, the firm said, “We want to be clear that we reject the premise and the substance of the Order in the strongest possible terms.”
The memo described the regulator’s language as “extremely inflammatory” and insisted that the trading activity Sebi flagged—especially the first eight minutes of trading on 17 January 2024—was nothing more than “basic index arbitrage trading, which many of you will know as a core and commonplace mechanism of financial markets that keeps the prices of related instruments in line.”
The firm argued that such activity is “unambiguously good for the health of financial markets,” and said the order “disregards the role of liquidity providers and arbitrageurs in markets.”
The case has set off a debate among legal experts about where the boundary lies between legitimate arbitrage and market abuse—an issue that could redefine the legal threshold of “manipulative intent” under Indian law.
Legal specialists say that this defence faces a steep climb.
Ravi Prakash, associate partner at Corporate Professionals, notes that arbitrage is not an all-purpose shield: “Merely claiming arbitrage will not suffice. Sebi’s own data on large Bank Nifty buys, delta exposures and rapid reversals suggests intent. Jane Street must meet that evidence on the same plane—trade logic, pricing consistency and proof that the moves were not designed to mislead.”
He adds that Sebi has already crossed the prima facie hurdle by the civil standard of preponderance of probability; the burden now shifts to the trader to “re-analyse the same churn and sequencing” to offer a benign explanation.
Prakash also warns that dialogue with the regulator cuts both ways. Sebi cites a National Stock Exchange (NSE) caution letter from February 2025 that flagged the very pattern still visible in May. “Dialogue helps only when followed by visible change,” he says, suggesting Jane Street must show what it altered after the warning and why those tweaks eliminated market-integrity risks.
Evidence
The firm has hinted it may withhold certain algorithmic details on proprietary grounds, but courts could compel disclosure if transparency is deemed essential.
While Prakash focuses on evidentiary hurdles, other lawyers suggest Jane Street’s alleged strategy resembles a “textbook” manipulative ploy and question the economic rationale.
Akshaya Bhansali, partner at Mindspright Legal, homes in on motive. “The crux is whether the trades created a false and misleading appearance,” Bhansali said, adding that the defence must supply an economic rationale robust enough to survive forensic scrutiny.
In her view, a pragmatic first step would be to deposit 5% of the impugned gains and seek a stay before the Securities Appellate Tribunal, a move that “puts pressure on the regulator without conceding liability.”
Over the past three years, the Securities Appellate Tribunal (SAT) has overturned 15-22% of Sebi orders annually and sent back 8-18% for review, which means most are upheld. Notable reversals include Karvy Stock Broking and Satyam Computers.
Legal experts also suggest that the case hints at subjectivity in “mispricing” and potential geopolitical undertones.
Senior securities lawyer Chirag M. Shah brings a markets-microstructure lens. He accepts that “plain-vanilla arbitrage” can look dramatic on expiry days, yet stresses that mispricing is subjective. “What I call mis-valued, you may not. Directional tone seeps in,” he says. Large expiry-day trades might breach price levels only briefly, but the damage—locked-in option pay-offs—can be permanent.
If Jane Street’s algorithms really were vanilla, Shah quips, “everyone on the planet would be rich”. He also hints at geopolitical undercurrents: cross-border friction can amplify regulatory heat when a foreign firm is involved. “Sometimes, when things go sour between countries, businesses in each other’s jurisdiction become collateral damage,” he observes, suggesting that international business dynamics and even geopolitics can complicate regulatory actions.
Ultimately, pattern evidence trumps rhetoric; only granular, time-stamped data can dispel the murkiness now surrounding the strategy, Shah said.
Smrithi Nair, partner at Juris Corp, highlights Sebi’s focus on apparently irrational cash-futures losses that served a larger options payoff. Regulators, she said, may view those losses as “a malafide cost” of a fraudulent scheme. Jane Street, therefore, must show not just the absence of intent but a coherent strategy document demonstrating how each leg furthered legitimate price convergence.