N. Sava, Staff Writer
📍 Silicon Valley, USA

When does clever financial trading turn into criminal market manipulation? This question is at the forefront of the ongoing conflict between India’s Securities and Exchange Board (SEBI) and Jane Street Capital, a proprietary quantitative trading firm. The heart of the dispute centers around Jane Street’s participation in the Indian stock market from January 1, 2023 to March 31, 2025 (Al Jazeera). During this time, Jane Street noticed a discrepancy between India’s cash market, which traded relatively slowly, and the derivatives market, which was highly liquid; India’s derivatives market experienced astronomical growth during the pandemic. In July of 2025, the Futures Industry Association estimated that Indian trades accounted for almost 60% of global derivatives trades, by volume. As a result, these two markets rarely moved in sync, and the high volume trades in the derivatives market would create temporary price discrepancies as the slower moving cash market lagged behind. The relative paucity of cash market trades created a situation where an individual trading firm, given enough resources, could single-handedly alter the price of indices. It was this financial environment, brought upon by the influx of Indian options traders far outweighing the number of traditional cash market traders, that functioned as a hotbed for arbitrage. And while the Indian stock market had long imposed stricter trade regulations for foreign entities in order to curtail exploitation, regulators have alleged that Jane Street utilized shell companies to circumvent these regulations. 

In essence, SEBI alleges that Jane Street would buy large amounts of shares in the Nifty 50 Index, an Indian stock market index, to induce a price rise. Jane Street would then purchase significant options, anticipating the fall of the cost of the Nifty 50 Index. Finally, Jane Street would sell a majority of its index shares when its options were about to expire. SEBI argues that this caused the cost of the index to fall, making Jane Street’s options trades extremely lucrative. For over 2 years, Jane Street is alleged to have applied this strategy, offsetting the relatively minor losses from selling the index shares with major wins from its options trading. 

Some believe that Jane Street’s arbitrage toed the line of legality and didn’t violate any Indian trade regulations, while accumulating substantial profits from India’s volatile equity market. And not only was this practice profitable for Jane Street, but it faced no competition, at least for a time. No other Wall Street firm had caught on to its India arbitrage strategy—except Millennium Management. According to court records, beginning in February of 2024, hedge fund Millennium is alleged to have begun poaching Jane Street traders, who shared with them the trading methods they had used to practice arbitrage in the Indian trading market. Alleging misuse of proprietary trading techniques, Jane Street sued Millennium Management in a lawsuit that would eventually settle out of court. However, the suit would prove to be a pyrrhic undertaking. 

Jane Street’s decision to take this issue to court essentially made public the details of its arbitrage strategy—not just to competitors, but also to international governments. SEBI, incensed to learn of what it viewed as manipulative trading occurring in its domain, launched a lawsuit against Jane Street on July 3, 2025. The crux of SEBI’s lawsuit alleges that Jane Street manufactured “a false or misleading appearance of market activity,” which misled retail investors into trading an index at a price that was allegedly “artificial and temporary” (BBC). More generally, they claim that Jane Street’s actions were a “serious breach of fairness and market integrity” (Indian Express). Jane Street has fiercely denied these allegations, likening its actions to “basic index arbitrage”, a form of trading that is completely legal and oftentimes beneficial in regulating global markets. 

As it currently stands, SEBI has banned Jane Street from participating in the Indian stock market, though it is currently evaluating Jane Street’s ban appeal. As part of the appeal, the quantitative trading firm placed $567 million dollars into an account controlled by Indian trade regulators as a form of bond, equalling the amount that was frozen by SEBI during its initial investigation. Industry participants are watching this case closely. The outcome may have far-reaching impact, by giving a green light or red light to arbitrage strategies in ambiguous legal environments and potentially leading to further regulatory initiatives.