Jane Street to staff: SEBI's allegations ‘painful’ and ‘far from reality’, working on formal response

Jane Street is planning to contest a decision by the Securities and Exchange Board of India (SEBI) that accused the US trading firm of orchestrating a “well planned and sinister scheme” to manipulate the country’s markets.

Last Thursday, the regulator barred Jane Street from dealing in securities in the country, alleging it systematically manipulated Indian bank stocks to trigger large payouts on related derivatives.

SEBI also ordered the impounding of ₹4,843.57 crore from Jane Street entities, saying these were gains arising from its market manipulation activities.

What Jane Street told its staff

In an internal memo sent to its roughly 3,000 employees on Sunday, senior management at Jane Street said they were “beyond disappointed” by what they described as SEBI’s “extremely inflammatory” accusations, Financial Times reported.

The memo added that the firm was working on a formal response to rebut the regulator’s findings, according to the report.

“It’s deeply upsetting to see the firm mischaracterised this way,” FT quoted the memo as saying.

“We take pride in the role we serve in markets around the world, and it’s painful to have our firm’s reputation tarnished by a report based on so many erroneous or unsupported assertions.”

Founded in 2000, Jane Street has grown into one of the world’s largest quantitative trading firms.

Why SEBI investigated Jane Street

SEBI’s investigation into Jane Street was triggered by revelations from a lawsuit filed last year by the firm against Millennium Management and two former traders who had moved to the hedge fund. Jane Street alleged that the traders had stolen a highly valuable trading strategy, later revealed to involve Indian options trading.

The regulator’s 96-page order focused on Jane Street’s trading in shares, futures, and options tied to the BANKNIFTY index of Indian banking stocks between January 2023 and March 2025. SEBI found that Jane Street’s four group entities had cumulatively earned profits of over ₹43,289 crore during this period.

What SEBI found

According to SEBI, on at least 15 BANKNIFTY options expiry days, Jane Street employed an “Intra-day Index Manipulation Strategy” involving two phases. In the first phase, early in the trading session, it aggressively bought large quantities of BANKNIFTY constituent stocks and futures contracts, temporarily pushing up the banking index. In the second phase, later in the day, it reversed these trades by aggressively selling the same stocks and futures, effectively nullifying the morning purchases.

While such trading could appear to be standard high-frequency arbitrage at first glance, SEBI said the strategy lacked a standalone economic rationale because Jane Street incurred nearly ₹200 crore in intraday losses from these trades. However, it simultaneously reaped outsized gains from its options positions, leading the regulator to conclude that the intention was to artificially move index levels to benefit its derivatives book rather than to engage in genuine investment or hedging.

“The aggressive and large intervention by the JS Group in Patch I lulled and induced the many participants in the BANKNIFTY index options to deal at prices that were heavily influenced by the intervention of JS Group in the component stocks and futures,” SEBI said.

Jane Street’s memo to staff argued that SEBI had used “a metric for market impact and trading aggressiveness which seems disconnected from actual market dynamics”. The firm maintained that its trading on one of the highlighted days, January 17, 2024, was “basic arbitrage trading”, a standard strategy in the industry.

SEBI has given Jane Street 21 days to object to the order and request a hearing. The regulator also indicated that it is examining the firm’s trading in other corners of India’s financial markets beyond BANKNIFTY options.