How Jane Street manipulated Indian stock market to make ₹36,500 Crore in profits

raytraceventures
Jul 8
8 min read

Introduction: A $4 Billion Shockwave in Indian Markets

In a stunning regulatory action, SEBI banned Jane Street, one of the world’s most sophisticated proprietary trading firms, for allegedly manipulating India’s index derivatives markets for over two years.

This is not your usual market scandal. It’s a high-stakes drama involving:

A billion-dollar trading strategy.
An explosive lawsuit in New York.
SEBI’s biggest-ever enforcement against a foreign quant firm.

Let’s break this down step by step, so every trader, investor, and market enthusiast can understand exactly what happened.

What Is Jane Street, and Why Should You Care?

Jane Street Capital is a legendary Wall Street trading firm known for:

Quantitative strategies.
High-frequency trading.
Billions in annual profits.

They’re active across:

US and European equities.
Exchange-traded funds (ETFs).
Options and futures.
Indian index derivatives (Bank Nifty, Nifty 50).

When Jane Street moves, markets feel it.

The Billion-Dollar India Options Strategy

Jane Street developed a proprietary expiry-day trading strategy that reportedly made over $1 billion in profits in 2023 alone.

How it worked (simplified):

Build huge options positions before expiry.
Aggressively buy futures and stocks in the morning to move index prices up.
Reverse positions in the afternoon to push them down.
Pocket the gains when options settled exactly where they wanted.

How It Works—Step by Step

1️⃣ Pre-Expiry Position Building

When?

Usually days or weeks before expiry.

How?

Build a large directional options position, for example:
- Buying deep out-of-the-money Puts (bearish bet).
- Selling Calls (bearish bet).
- Or the reverse if you plan to lift the market.

Purpose:

If you can push the index to settle near your strike, the position becomes very profitable.

Example:

Short 200,000 Bank Nifty 47000 CE (Call Options), expecting expiry to stay below 47,000.
Long 500,000 ATM(At The Money) Puts.

2️⃣ Morning “Mark-Up” (or “Mark-Down”) Trades

When?

On expiry day, often at market open.

How?

Aggressively buy (or sell) index futures and/or a basket of the largest component stocks (e.g., HDFC Bank, ICICI Bank).

Why?

To push the index price higher (or lower), creating:
- A sense of direction (momentum).
- Panic or euphoria among retail traders.

Mechanics:

Use market orders or iceberg orders to chew through liquidity.
The goal is to “ignite” directional momentum and make the market think a big institutional buyer or seller is active.

Result:

The index moves artificially, with no genuine change in fundamentals.

3️⃣ Triggering Gamma Squeeze

How this works:

As the index moves, option writers (market makers) must hedge delta exposure.
If you’ve forced the index to cross critical strike prices:
- Traders must buy (if index is rising) or sell (if falling) futures to hedge.
- This further amplifies the move.

Example:

If Bank Nifty jumps from 47,000 to 47,300:
- Option sellers of Calls must buy futures to stay delta-neutral.
- Their buying lifts the market more—a feedback loop.

4️⃣ Afternoon Reversal

When?

Final hour before market close.

How?

Reverse your morning trades:
- Sell the futures and stocks you bought.
- Or buy back what you sold short.

Purpose:

Bring the index back toward your targeted expiry level.
Crush intraday volatility.
Make your options position (e.g., short Calls) expire worthless.

This is the most sensitive period—because SEBI and exchanges monitor closing prices closely. However, if executed carefully, these moves can be disguised as liquidity unwinds.

5️⃣ Settlement Profit Harvest

At 3:30 PM:

The index settles at the closing price.
Your large options book is marked to this settlement.

Example of Profit:

You were short Calls at strike 47,000.
The index closes 46,950.
Those Calls expire worthless—100% profit.
The morning futures losses are offset by this massive options gain.

Example of a Single Day Trade (January 17, 2024)

This day is heavily cited in the order to illustrate how the scheme worked:

1️⃣ Morning:

Bought ₹4,370 crore worth of Bank Nifty index futures and large-cap stocks to artificially push the index up.

2️⃣ Options Positioning:

Simultaneously sold ₹32,115 crore worth of Bank Nifty options, building a massive short position expecting reversal.

3️⃣ Afternoon:

Sold ₹5,372 crore worth of futures to depress the index back down before expiry.

4️⃣ Net P&L that day:

Options Profit: ~₹735 crore
Loss on Futures/Cash: ~₹61 crore
Net Profit: ~₹673 crore

This pattern repeated in varying scale on the other 17 expiry days.

The Lawsuit That Exposed Everything

Lawsuit Filed (April 2024)

Jane Street sued Millennium Management and two former traders—Douglas Schadewald and Daniel Spottiswood—accusing them of stealing a proprietary India-focused options strategy. That strategy reportedly earned Jane Street about $1 billion in 2023.

Jane Street’s Claims (Plaintiff):

The strategy was proprietary intellectual property developed internally with substantial resources.
The traders signed confidentiality agreements restricting them from taking strategies to competitors.
Jane Street claimed Millennium and the ex-traders engaged in misappropriation by:
- Downloading documents,
- Reproducing code or methodologies,
- Deploying them at Millennium to generate similar profits.
They argued the strategy was not publicly known and was a protected “trade secret” under the U.S. Defend Trade Secrets Act (DTSA) and New York State law.

Millennium and the Traders’ Defense:

The strategy was based on public market data and widely-known concepts (index expiry dynamics, volatility decay).
It was not unique to Jane Street and did not meet the legal threshold of a “trade secret.”
The traders claimed any knowledge was developed independently or “general skills and experience.”
Millennium argued Jane Street was trying to overreach trade secret protection to restrict legitimate competition.

What Made the Case Special:

The lawsuit revealed:
- The core mechanics of Jane Street’s India options strategy,
- Approximate profits ($1B in 2023),
- Internal process details—such as timing of trades, position sizes, and expiry-day tactics.
Jane Street had to balance:
- Defending its intellectual property,
- Avoiding disclosure of too many trading details (which ironically ended up in public filings).

Outcome:

The case settled out of court in December 2024, so no binding ruling was issued on whether the strategy qualified as a trade secret.
Settlement terms were confidential.

How SEBI Traced Jane Street’s Trading to the Strategy

The key chain of events:

🔹 Before the lawsuit:

SEBI already had some alerts about large expiry-day trades in Bank Nifty and Nifty 50 during 2023–2024.
They noted unusual patterns but did not have full visibility into the strategy’s internal logic.

🔹 The lawsuit disclosures:

In the U.S. filings, Jane Street’s own pleadings described:
- The entry and exit timing of trades.
- Their proprietary “momentum ignition” and hedging structure.
- How they scaled positions intraday to influence index settlement levels.
These filings included time stamps, P&L exhibits, and descriptions of Bank Nifty expiry tactics.

🔹 SEBI’s response:

SEBI obtained these filings via public records and inter-regulatory cooperation.
Investigators matched the patterns described in the lawsuit to:
- NSE trading data,
- Cash and futures volume spikes,
- Options settlement prices.
They mapped at least 18 sessions where the strategy was deployed.
SEBI concluded the trading activity was consistent with:
- Artificial price moves,
- Expiry-day settlement manipulation,
- False market creation—falling under PFUTP Regulations.

🔹 Evidence in the Interim Order:

SEBI’s interim order cited:
- 18 expiry days with statistically significant distortions.
- Over ₹43,000 crore in gains from options offsetting losses elsewhere.
- The same “strategy contours” revealed in Jane Street’s lawsuit.

This is why the lawsuit—originally about a trade secret theft—became a trigger for SEBI’s regulatory crackdown.

Total Profits Allegedly Gained

SEBI estimates Jane Street generated net profits of ~₹36,500 crore (~$4.38 billion) over ~2 years by deploying these expiry-day strategies.

✅ Options Segment Profits:

Gross profit: ~₹43,000 crore

✅ Offsetting Losses in Futures/Stocks:

Losses: ~₹7,700 crore

🎯 Net Profit after Offsets:

₹36,500 crore (~$4.38 billion)

The Ban and the ₹4,843 Crore Seizure

On July 3, 2025, SEBI issued an interim order barring Jane Street and its Indian entities from trading in India’s securities markets. They were accused of violating the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) by manipulating key index levels—especially BANKNIFTY and NIFTY50—to profit at the expense of retail traders. SEBI has impounded ₹4,843 crore (~$570 million) in suspected illicit gains and issued a trading ban until a final conclusion is reached. Jane Street has denied wrongdoing and plans to contest the interim order. This is one of the largest market-manipulation allegations in India’s history.

What is PFUTP?

PFUTP stands for Prohibition of Fraudulent and Unfair Trade Practices. It is governed by the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. This regulation is the primary legal framework SEBI uses to detect, prevent, and penalize market manipulation and fraud in India.

Objective of PFUTP Regulations

The purpose of PFUTP is to maintain market integrity, ensure fair trading, and protect investor interests by prohibiting practices such as:

Market manipulation
Creation of artificial price levels
Spreading false information
Rigging settlement prices
Circular trading or wash trades
Misuse of position to create an advantage over other market participants

Key PFUTP Rules Relevant to This Case

Here are the core regulations that SEBI alleged Jane Street violated:

🔹 Regulation 3

Prohibits any person from directly or indirectly:

(a) Buying, selling, or otherwise dealing in securities in a fraudulent manner
(b) Using or employing any manipulative or deceptive device
(c) Employing any scheme to defraud investors
(d) Engaging in any act, practice, or course of business which operates as fraud or deceit upon any person in connection with securities dealing

🔹 Regulation 4

Prohibits manipulative, fraudulent, or unfair trade practices, including but not limited to:

4(2)(a): Creating false or misleading appearance of trading in the securities market
4(2)(b): Dealing in a security with the intention of artificially inflating, depressing, maintaining or causing fluctuations in its price
4(2)(e): Any act or omission amounting to manipulation of the price of a security
4(2)(g): Entering into transactions that operate to defraud investors or the market
4(2)(k): Advancing the creation of false market or price rigging

These sub-clauses are commonly invoked in front-running, marking the close, and expiry-day manipulation cases.

Bottom Line

PFUTP regulations are SEBI’s most powerful legal tools to counter market abuse. Jane Street allegedly:

Created artificial volatility in Bank Nifty/Nifty50 on expiry days
Manipulated closing prices
Profited through index options settlement gains
Violated Regulations 3 and 4 by engaging in a systematic scheme to defraud or manipulate the market.

Important: This is an interim order—Jane Street has denied wrongdoing and will contest the allegations in proceedings that will determine final liability.

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