India ban threatens Jane Street’s money machine
Allegations of market manipulation and temporary block on activities pose wider risks for Wall Street trader
India has been a money machine for Jane Street, netting the trading giant more than $4bn in profits in just over two years. But it is now the source of a scandal that is imperilling the Wall Street firm’s golden run.
The Securities and Exchange Board of India last week accused Jane Street of a “sinister scheme” to manipulate Indian stocks and derivatives, temporarily banned its activities in the country and impounded more than $550mn of “illegal gains” — the most draconian penalty it has ever levied. It is now expanding its probe into the firm’s trades in other parts of India’s financial markets.
Jane Street denies any wrongdoing. In an internal memo seen by the Financial Times, senior executives said they were “beyond disappointed” by Sebi’s report and planned a formal response to its “extremely inflammatory” claims.
Although the firm is famously wary of financial risk, and generally seen to be equally averse to regulatory and reputational scrapes, its rapid growth and a loose management structure designed for a smaller organisation may have contributed to its Indian travails.
At the heart of Sebi’s case is the charge that Jane Street intentionally manipulated Indian bank stocks to engineer huge pay-offs on parallel options bets it had placed on the level of India’s BankNifty index.
What Jane Street said was “basic index arbitrage” — taking advantage of often large mismatches between India’s stock market and the huge derivatives market that has mushroomed on top of it — Sebi argued was an “intentional, well-planned, and sinister scheme and artifice”.
Jane Street was not the only large foreign trading firm to seize on these opportunities but it stood out “because they went completely ballistic”, according to Abhay Agarwal, founder and fund manager at Piper Serica in Mumbai.
Among rivals there was a mix of shock and schadenfreude at the allegations, which have plunged the hugely successful trading firm into crisis.
Alexander Gerko, founder of XTX Markets, said his first reaction was to think that “it’s not illegal to be smarter than your counterparties”. However, the details of the Indian regulator’s 105-page report changed his mind. “If you read the allegations made in the Sebi filing, the whole thing appears to stink very badly,” he wrote in a LinkedIn post.
Jane Street was founded by a handful of former traders and technologists in 2000, the start of a golden era for high-frequency trading firms that used algorithms, fibre-optic cables and microwave towers to trade faster and more efficiently than traditional brokerages and investment banks.
However, insiders, rivals and industry analysts say the firm has long subtly differentiated itself from the HFT industry. Although it also hires mostly elite mathematicians, scientists and programmers, and uses algorithms and computing power to automate its activities, it has always been considered more a trading firm than a technology business.
As a result, it has often specialised in making markets and spotting arbitrage opportunities in knottier areas such as depositary receipts, exchange traded funds, emerging equity markets and derivatives tied to them — where cleverness can trump raw speed.
It has proved phenomenally profitable in recent years, as core markets such as ETFs have flourished and allowed it to expand aggressively into areas including options and even corporate bonds.
The New York-headquartered firm’s net trading revenues hit $20.5bn last year, up from $2.1bn in 2019. In the first quarter of 2025 it notched up net trading revenues of $7.2bn, more than Morgan Stanley and within touching distance of Goldman Sachs, for generations Wall Street’s most respected trading powerhouse.
However, its breakneck growth — staffing has roughly tripled since the start of 2020 — has challenged what was long a tight-knit, flat and somewhat quirky organisation. With no CEO, chair or traditional management structure, the firm is run by roughly 40 equity partners, the most prominent of whom is Rob Granieri, the sole remaining founder who is often described as first among equals.
Sebi — which like other Indian regulators has long been seen as protectionist — has taken a reputational hit in recent years after its failure to take definite action following short seller Hindenburg Research’s allegations of market manipulation by the politically connected Adani conglomerate.
But other traders said its preliminary investigation into Jane Street looked thorough. “This is a credible order and [Jane Street’s internal] email leaves a lot of open questions,” one competitor said.
Jane Street can now continue to trade in India after putting the $567mn in an escrow account, but Indian law permits a penalty of three times such gains if the charges are proved.
Moreover, Sebi is now investigating Jane Street’s wider trading, such as in the Sensex and Nifty50 indices. If it finds further evidence of manipulation, its assessment of the firm’s “illegal profits” — and the resulting penalties — could rise higher. “It is difficult to estimate how long all this could take — the scope is quite large,” a Sebi official close to the probe said.
Traders at Jane Street’s rivals now expect regulators in other countries to start making their own inquiries to check for malfeasance in their markets.
The Indian ban is a huge financial and reputational setback for Jane Street, which entered India’s derivatives market just as it was reaching a frenzied pace, and has made billions out of it.
In December 2020 — when Jane Street first set up its Mumbai arm — the monthly turnover of futures and options markets on the National Stock Exchange had reached nearly $300bn, from just $134.7bn four years earlier, and by December 2024 stood at $512.7bn.
This became a fertile terrain for Jane Street. Between January 2023 and March 2025 the firm netted an overall profit in India of about $4.3bn, Sebi said in its order on Thursday.
However, with the vast majority of the millions of young Indian retail investors losing money on options, Sebi was growing increasingly concerned.
It started last year to raise the barriers for options trading, which has quelled the market somewhat. Yet data released on Monday indicated that the number of individual traders rose to 9.6mn in the fiscal year ending March 2025 from 5.8mn two years earlier, while their total annual losses surged from $7.7bn to $12.3bn.
The boom in retail options trading fuelled “liquidity, volatility and with it, opportunity”, said Dinesh Thakkar, chair of Angel One, among the largest stockbrokers in India. “Proprietary trading desks thrive in such environments, leveraging high-frequency and algorithmic strategies.”
With alarm bells already ringing inside Sebi’s Mumbai headquarters, an April 2024 lawsuit in which Jane Street accused Millennium Management of stealing the secrets of its India options strategy caught the regulator’s attention.
It spoke to Jane Street about its India practices in August but was dissatisfied by its “bland statements”, according to last week’s order. After Sebi asked the National Stock Exchange to scrutinise the trader’s behaviour, the NSE in November highlighted Jane Street’s activity around three main banking stocks that comprised 60 per cent of the banking index’s weighting.
By the start of 2025, Sebi was convinced the US trader was manipulating the BankNifty index through stocks to earn a profit on options tied to the benchmark, but did not have enough evidence. Through the NSE it sent Jane Street a caution letter in February, asking it to refrain from large positions and certain trading patterns, and launched a wide-ranging investigation.
A Sebi official said Jane Street had gone quiet after the NSE letter but had resumed similar trades by May, creating a sense of urgency within the regulator and spurring last week’s intervention. In its internal memo, Jane Street’s management said this depiction of events “felt especially far from reality”, arguing they had tweaked their activities to address regulatory concerns and had since been “consistently rebuffed” when seeking further talks.
Sumit Agrawal, a securities lawyer who has worked with the Indian regulator, said the order was “factually extensive and clearly signals regulatory unease with the trading conduct observed around expiry”, but still faced legal hurdles.
It will need to “clear a high bar in establishing that the trades in question constituted market manipulation under Indian securities law”, he said, as merely engaging in “aggressive, high-volume expiry trades, without accompanying deception or evidence of intent to create artificial prices”, did not automatically amount to manipulation.
The case could take years to pass through India’s clogged judicial system but financiers both in India and abroad say it has already dented Jane Street’s image. For many rivals, the question is how precisely it will respond to Sebi’s charges — and what the impact will be on its sprawling global activities.
Competitors say the apparent thoroughness of the Indian regulator’s report will probably require Jane Street to make any rebuttal public, to contain the fallout on its wider business.
While Jane Street has a strong capital structure — with more than $50bn in members’ equity and long-term debt financing, according to people familiar with the matter — fines and other penalties could sap that.
Moreover, investment banks that help extend financing to Jane Street often have automatic reviews whenever a counterparty is subject to regulatory measures. Many will be loath to cut loose a lucrative client like Jane Street, but scrutiny could hit its ability to trade. Jane Street also has an extensive client-facing business, and some investment managers may decide to step back a little to see how the situation evolves.
Potentially most problematically, regulators elsewhere could begin to take a closer look at Jane Street, with some rivals girding themselves for another wave of scrutiny in an industry often scapegoated by others in finance.
As a result, Jane Street’s disruptive, envy-inducing, golden run could be at risk.
“It’s survivable,” said one senior executive at a big rival firm. “But it could take years to regain trust.”
