SEBI bans US-based Jane Street & Group for alleged “fraudulent and manipulative” trading practices in Indian Stock market; re-ignites debate on security of small/retail investors

New Delhi, July 5: SEBI has banned US based trading firm Jane Street and the group entities for violating India’s capital market regulation saying the trades executed by the group were “prima facie fraudulent and manipulative” especially in the “bank nifty” index options segment. The impact of this was seen in the market especially on shares prices of stock exchanges like BSE and Angel One which fell by 6 per cent fearing the ban will impact trading volumes in the derivative market.

This has reignited debate on how secure is the stock market especially for small and retail investors? Their participation has seen multi-fold increase over the years. Stock market is generally seen as a source for “quick money”, but they need to exercise caution while putting their hard earned money.

According to SEBI the examination of the trade deal done by the Jane Street Group entities reveal that profits from Index Options alone accounted for over Rs 43,289.33 Crore whereas losses in stock futures, index futures and cash cumulatively amounts to Rs 7,687.21 crore from January 1, 2023 to March 31, 2025, across all product categories and segments of NSE.

The regulator ordered that the total amount of “unlawful gains” of over Rs 4,843 crore earned by the JS Group shall be impounded, jointly and severally. Entities are directed to open escrow account in a Scheduled Commercial Bank in India to deposit jointly and severally the aforesaid amount of unlawful gains with a lien marked in favour of SEBI and the amount kept therein shall not be released without permission from SEBI.

SEBI came down heavily on the Jane Street saying it resorted to undertaking prima facie manipulative ‘extended marking the close’ despite explicit advisory issued to them by NSE in February 2025. “When suspicions around the prima facie manipulative trading patterns of JS Group arose in early 2025, on SEBI’s instructions, in February 2025, NSE as a first line regulator clearly and explicitly cautioned the JS Group to desist from taking on large risks in the index options markets, and to desist from undertaking trading patterns that raised concerns of manipulative behaviour. In turn, JS Group themselves represented in February 2025 to NSE of their commitment to adhere to all regulations.”

However, as recently as May 2025, as has been clearly demonstrated in this order, JS Group again resorted to undertaking prima facie manipulative ‘extended marking the close’ trading patterns of large and aggressive intervention in index and constituent markets towards the expiry day closing, so as to influence and manipulate the index to their illegal advantage. The impugned trades in May 2025 are a cynical violation of the caution letter issued to the JS Group on February 06, 2025, and of their own declarations made to NSE in the same month.

“Such egregious behaviour, in clear disregard/defiance of the explicit advisory issued to them by NSE in February 2025, amply demonstrates that unlike the vast majority of Foreign Portfolio Investors and other market participants, JS Group is not a good faith actor that can be, or deserves to be, trusted. The integrity of the market, and the faith of millions of small investors and traders, can no longer be held hostage to the machinations of such an untrustworthy actor. Investor protection forms the core of SEBI’s regulatory mandate. In the face of such a strong prima facie case that allowing the JS Group to continue as before may severely compromise investor protection on an extraordinary scale, SEBI has a duty to directly intervene

However, the larger question is how to protect small or retail investors’ interest and to ensure that such manipulative practices do not occur. According to experts the regulator needs to make foreign players/traders more transparent regarding their identity. More important that the market must act immediately as and when it notices “unusual” profits from the derivatives. Early enquiry would lead to less damage.