SEBI vs Jane Street: What Retail Traders Need to Know

How to survive?

Last week, SEBI banned Jane Street Group (a major Wall Street trading firm) from Indian markets over alleged index manipulation. Here is a quick take on the SEBI report and how it affects your trading.

Who Is Jane Street?

Jane Street is a global proprietary trading firm known for high-frequency trading and sophisticated algorithms.

In India, they operated through multiple entities and became one of the largest players in index derivatives – accounting for nearly 50% of options trading volume.

Between 2023-2025, they reportedly made ₹36,500 crore in net trading profits from Indian index derivatives.

The Alleged Manipulation & Strategies

SEBI identified 21 instances where Jane Street allegedly manipulated Bank Nifty and Nifty indices using two strategies:

1. Intra-day Index Manipulation (Morning Pump, Afternoon Dump)

I have tried to explain the process in simple terms below.

• Buy massive amounts of Index stocks (HDFC Bank, Reliance) in the morning to push the index up

• Then, after the price goes up, buy PUT options.

• Aggressively sell those stocks in the afternoon, causing the index to crash

• Profit from the PUT options while taking minimal losses on stocks.

2. Marking the Close

• Flood the market with buy/sell orders in the final hours on expiry days

• Artificially push the closing price up or down to benefit their open options positions.

The Scale of Manipulation: An Example

January 17, 2024 – Jane Street's most profitable day:

• Morning: Bought ₹4,370 crore worth of Bank Nifty stocks/futures, pushing the index from ~46,000 to ~47,200

• Simultaneously: Built ₹32,115 crore worth of Buy PUT & Sell CALL positions (both bearish). This is ~7 times their initial stock/futures position.

• Afternoon: Aggressively sold everything, crashing the index back down. The leveraged Bearish positions become extremely profitable.

• Result: ₹735 crore profit in a single day

This is not sophisticated trading. It is brute force manipulation using massive capital. Money Power.

Spotting the Manipulations

Here is how you could zero in on manipulative acts in a particular stock.

1. Case Study: HDFC Bank, 15 May 2025

The average delivery % of HDFC Bank is around 67.5%. But, on the day of manipulation, the average delivery% was only 55%. These type of days possibly indicate manipulative acts.

2. Case Study : HDFC Bank, 29 May 2025

I usually avoid taking positions in stocks if I see a big spike in Institutional Activity but with low delivery volumes. Perfect candidates for manipulation.

If someone had the power to manipulate HDFC Bank (a major index heavyweight) what could they do with other stocks in the market?

Why It Took Time for SEBI to Catch

The manipulation was clever.

• Spread across cash, futures, and options markets

• Used 4 different entities for different trades

• Individual trades looked legitimate in isolation

• Only the pattern over multiple days/trades across years revealed the intent.

SEBI even warned Jane Street in February 2025, but they continued the practice in May 2025. This probably led to the harsh ban.

My View & Take

Okay, this is the tough part to write.

The Good

Even if it took time, SEBI has actually figured things out. Now this investigation will expand to other stocks and prop traders. This sends a strong message to other potential manipulators.

The Bad

Manipulators are now going to become cautious. This might bring down volumes in options trading as suggested by Mr. Nithin Kamath given the trading volumes contributed by Prop Firms.

The Ugly

You were probably on the wrong side of these trades. Obviously, you are not going to get your money back. The market is not fair. Whether you like it or not, Big Money moves markets.

Key Lessons

• If you are an Options buyer, do not average down on Expiry day losses hoping for a last hour wonder. The big players are allegedly controlling both the intraday moves and the closing price. And who is on the opposite side? It is you. So, how will price move in your favour?

• If you are an Options Seller and your position is already profitable in the first half, trail the stop losses to book some profits. Do not hold on till the last hour to extract every single penny.

• Manage Risk through Hedges/Stop Loss if you are on the Options Selling side. Do not trade naked.

• Do appropriate Position Sizing. Cut your position size on Expiry day.

This will ensure one manipulated day won’t wipe your capital.

In markets rigged by big players, the only way you can win is by staying alive to fight another day.

Survival is the only strategy that matters in the long run.

Learn to Survive!