The Securities and Exchange Board of India (SEBI) has initiated a deeper probe into Jane Street’s index options strategies, following allegations of market manipulation made by several institutional investors. The investigation focuses on the use of algorithmic trading techniques that may have caused artificial price movements and misled market participants in the Indian derivatives market.

Complaints from Institutional Investors Spark Action

Jane Street, a New York-based quantitative trading giant, has been under SEBI’s scanner after at least nine institutional investors raised concerns. These entities alleged that one of Jane’s algorithmic strategies triggered sharp reversals in index option prices soon after the firm entered positions — a move seen as deliberately inducing volatility to exploit price manipulation.

“A specific algo strategy consistently caused market movements that misled other participants, allowing Jane Street to profit at their expense,” said a hedge fund manager familiar with the development.

NSE Cleared Earlier Concerns, SEBI Digs Deeper

In January 2025, the National Stock Exchange (NSE) began a review of Jane Street’s derivatives activities, flagging irregular trading behaviour involving rapid price reversals. At that time, NSE had expressed concern about potential market abuse.

JSI Investments, Jane Street’s Indian entity, and Jane Street Singapore, both active participants in India’s F&O market, were part of this probe. Nuwama, the compliance partner for JSI, argued that the trades were algorithm-driven with no human intervention or malafide intent. Satisfied with the explanation, NSE closed its probe on 30 April 2025.

However, fresh developments prompted SEBI to launch an independent investigation in early June. Officials believe the issue raises broader questions around the tension between high-frequency trading innovation and market integrity, especially amid the rapid growth of derivatives markets in India.

India’s Derivatives Market: Booming but Risky

India currently holds the distinction of being the world’s largest derivatives market by contract volume. Despite the scale, SEBI has consistently warned about the risks faced by retail traders — stating that 93% of retail investors in India incur losses in F&O trading. These systemic risks have intensified regulatory focus on algo-based trading firms, particularly those generating outsized profits.

Jane Street’s presence in India has grown rapidly since it entered the market in March 2020. According to a Bloomberg report, India is now among the 18 countries where Jane holds more than a 2% share in derivatives volume.

Jane Street’s Soaring Revenues Draw Scrutiny

Globally known for its dominance in algorithmic and proprietary trading, Jane Street reported $1 billion in revenue from India in 2023, which ballooned to $2.3 billion in 2024, largely from index options trading. Its global revenue surpassed $20 billion in 2024 — overtaking banking giants like Citigroup and Bank of America.

Jane’s employees reportedly earned an average compensation of $1.39 million, nearly four times the compensation at Goldman Sachs, indicating the firm’s high-profit, high-risk trading model. Its ability to operate independently of banking regulations and deploy its own capital gives it an edge in fast-moving markets like India.

Legacy of Legal Disputes and Global Oversight

Jane Street was earlier in the spotlight in 2023, when it became embroiled in a legal battle in New York with $72-billion hedge fund Millennium Management. The case revolved around a ‘stolen strategy’ allegedly designed for Indian markets, further intensifying regulatory and media focus on its operations.

The new SEBI probe suggests regulators are becoming increasingly wary of sophisticated trading strategies that may blur the line between legitimate arbitrage and potential market manipulation. Global regulators are also scrutinising similar practices in the wake of mounting retail trader losses and algorithm-driven market distortions.

What Happens Next?

While the NSE has closed its probe, SEBI’s investigation into Jane Street, JSI Investments, and its Singapore affiliate remains ongoing. Given Jane’s rising market influence and the scale of its trading in India, the outcome of this probe could set a significant precedent for algo trading regulation in one of the world’s fastest-growing financial markets.

If SEBI finds sufficient grounds, it may tighten the rules governing high-frequency trades, enhance algorithm audit requirements, or even impose penalties and restrictions on specific strategies used by foreign players.

For now, investors, traders, and firms alike are watching closely — as SEBI takes a hard look at the evolving frontier of algorithmic finance in India.

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