A high-stakes battle

The legal showdown between Sebi and Jane Street could redefine India's derivatives market

- KHUSHBOO TIWARI & SAMIE MODAK

A legal battle is looming - one that could reshape India's derivatives market, the world's largest by trading volume, and set a precedent for how regulators worldwide draw the line between clever trading and market abuse.

The genesis of this battle lies in the sweeping crackdown the Securities and Exchange Board of India (Sebi) has launched against Jane Street, a USbased high-frequency trading (HFT) firm. Sebi has impounded ₹4,843 crore in alleged "unlawful gains", accusing Jane Street of orchestrating a sophisticated "sinister" scheme to manipulate the popular Bank Nifty index through aggressive derivative trading strategies.

Jane Street, a global titan in algorithmic trading, has fired back, calling Sebi's allegations "fundamentally mistaken". The firm is preparing to challenge the ban, likely at the Securities Appellate Tribunal.

The case, which could reach the Supreme Court, has ignited a fierce debate over what constitutes legitimate trading and what crosses into the realm of market manipulation.

With Indian retail investors suffering over ₹1 trillion in losses in 2024-25 (FY25), the stakes are monumentalnot just for Jane Street and Sebi, but also for the credibility and future of India's capital market ecosystem.

The anatomy of the allegations Sebi has laid out its case against Jane Street in a detailed, 105-page interim order, dated July 3, with voluminous annexures.

According to the regulator, the firm executed a two-pronged strategy: it aggressively bought Bank Nifty constituent stocks in both the cash and futures segments, artificially inflating the index. Later in the day, it offloaded those positions, while holding large short positions in index options, profiting from the index's decline.