This Article was originally published in The Global Analyst
Two dates have recently assumed great significance for India’s capital markets: September 23, 2024, and July 5, 2025. On the former, SEBI (Securities and Exchange Board of India) published a research report revealing that 93% of over 1 crore (10 million) retail F&O traders suffered losses during FY22–FY24. The reality behind this grim statistic came alive on July 5, 2025, when SEBI passed an interim order[1] banning Jane Street, a heavyweight foreign institutional investor (FII), from Indian markets. It also impounded ₹4,843 crore ($564 million) in what SEBI termed “unlawful gains.” Remarkably, Jane Street promptly deposited the full amount into an escrow account as directed.
This episode involves three key players: FIIs, Retail Investors, and the Regulator. Each perspective sheds different light on the same story. But first, let’s unpack the mechanics.
The Technical Landscape
SEBI examined Jane Street’s trades over a 15-month window, from January 1, 2023, to March 31, 2025. It flagged 21 trading days as manipulated, during which Jane Street allegedly secured ₹4,343 crore—13.25% of its total profit of ₹36,502 crore during that period. This amount was the focus of SEBI’s disgorgement order.
At first glance, Jane Street’s strategy looked entirely above board. On expiry days[2], it bought major banking stocks (e.g., HDFC Bank, ICICI Bank) and Bank Nifty futures aggressively between 9:00 a.m. and 12:00 noon—suggesting bullish intent. Expiry day is the last day in a derivatives contract where accounts will be settled or squared off.
Simultaneously, it executed seemingly contradictory options trades—selling call options and buying put options—both of which are bearish. While selling calls earned premiums, these were likely used to fund put purchases, effectively creating a synthetic short position. Jane now held opposing market bets.
Then came the crucial twist. Between noon and 3:30 p.m., Jane unwound its long positions, triggering a sharp fall in stock prices. Though this meant losses in the cash and futures segments, it hugely boosted its options trades. Put options gained value; call options collapsed. Jane selectively booked profits on its derivatives or let them expire deep in the money.
This pattern occurred on 15 of the 21 manipulated days, netting Jane ₹3,913 crore ($455 million). The most profitable day, January 17, 2024, alone generated ₹734 crore ($85 million).
The Closing Price Gambit
On three other days (out of 21), Jane engaged in what SEBI termed “Extended Marking of the Closing Price”—a manipulation tactic where large orders are placed just before the market close to skew the settlement price.
From 9:00 a.m. to 2:30 p.m., Jane executed low-volume, non-directional trades, maintaining a neutral delta. But in the final hour, it began aggressively selling index options and banking stocks, leading to a sharp drop in prices. Again, this benefitted its earlier bearish positions.
The total profit from these three days: ₹560 crore ($65 million).
Understanding the Manipulation
Jane focused its tactics on weak market days, specifically on expiry dates. Early aggressive buying sent bullish signals to retail investors, who joined the rally. SEBI noted Jane accounted for 15–25% of daily traded value on those days—a dominant presence.
When the sentiment was weak, options premiums were low, letting Jane accumulate large bearish positions cheaply. Importantly, Jane’s goal was not to profit from rising prices but to engineer a fall. After 12 noon, it would begin liquidating its holdings to deliberately push prices down, incurring small losses in cash markets for large options gains.
Retail investors, meanwhile, typically sold put options (to earn premium) during the morning rally—unwittingly aiding Jane`s execution. As the market fell, these investors scrambled to cover positions—amplifying the impact and profits.
What made this manipulation, rather than smart trading? It was Jane’s outsized volume, its ability to influence price discovery, and the coordinated strategy designed to profit from short-term expiry dynamics.
Key Learnings
For FIIs
The rise of quantitative strategies and high-frequency trading (HFT) in India’s booming F&O markets invites regulatory heat. Many hedge funds, like Jane Street, protect their proprietary models, sacrificing transparency. Internal conflicts—such as Jane’s legal battle with former employees over IP theft—can inadvertently expose such operations.
The Indian F&O market, one of the largest globally, is a lucrative target. But the regulatory risk is now very real. FIIs must institutionalize risk controls and ensure that strategies are economically defensible. SEBI has shown it will scrutinize patterns, not just outcomes.
For Retail Investors
Retail participants were the biggest casualties. Since COVID-19, retail interest in F&O has exploded. But SEBI’s 2024 study showed that 9 out of 10 retail traders lose money—a warning largely ignored.
Jane Street’s strategy exploited retail behaviour. When it engineered rallies, retail investors jumped in—often selling cheap put options. But when prices reversed, they were forced to cover at huge losses, while Jane cashed in.
India’s options market is 150x the size of its cash market, compared to 5x in the US and 2–4x elsewhere. With 90% participation from retail (vs. 20% globally), largely in short-dated weekly options, the signs point to speculation, not hedging. While leverage draws investors in, it also magnifies losses.
For Regulators
SEBI’s discovery was partly accidental—triggered by Jane Street’s out-of-court settlement with Millennium Fund, which exposed internal conflicts. Yet, this led SEBI to act swiftly.
Tracking manipulation across millions of trades is no easy task. Trading profits aren’t illegal per se—intent and patterns matter. SEBI’s 100+ page interim order stands out for its technical rigour. Going forward, technology and analytics must be central to market surveillance.
SEBI must now develop frameworks to flag patterns that violate economic rationale—for instance, buying with the intent to lose in cash to win big in derivatives. Any effort to influence price discovery, especially on expiry days, will be closely watched.
Conclusion
The Jane Street case underscores SEBI’s evolving approach—economic rationale will now be the litmus test for market intent. When trades are designed to subvert natural price discovery—particularly on derivatives expiry days—they invite scrutiny.
India’s booming options market demands deeper oversight, sharper technology tools, and more investor awareness. For retail traders, the lesson is blunt - in a battlefield dominated by algorithms and deep pockets, blind speculation is a recipe for ruin. For institutional players, the message is clear - regulatory scrutiny will match innovation, step for step.
[2] Expiry day is the last day in a derivatives contract where accounts will be settled or squared off