Jane Street Fraud: Understanding how it made Rs 36,500 crore profit by manipulating Dalal Street
Jane Street Group LLC is a global proprietary trading firm in the financial services industry. Recently SEBI has penalized the company with Rs. 4,843,57,70,168/- (Four Thousand Eight Hundred Forty Three Crore Fifty Seven Lakh Seventy Thousand One Hundred and Sixty Eight Rupees only).
Relevant Text of SEBI’s Order:
The total amount of unlawful gains earned by the JS Group from the alleged violations as provided in Table 44 i.e. Rs. 4,843,57,70,168/- (Four Thousand Eight Hundred Forty Three Crore Fifty Seven Lakh Seventy Thousand One Hundred and Sixty Eight Rupees only), shall be impounded, jointly and severally. Entities are directed to open escrow account in a Scheduled Commercial Bank in India to deposit jointly and severally the aforesaid amount of unlawful gains with a lien marked in favour of SEBI and the amount kept therein shall not be released without permission from SEBI.
COMPUTATION OF ILLEGAL GAINS
Let’s know the whole story.
Allegation of SEBI
SEBI’s inquiry revealed that the company was involved in creating artificial price movements on index expiry dates. The company used an “Intra-day Index Manipulation” strategy, where it would push up prices in the morning and then benefit from index option positions.
Intra-day Index Manipulation Strategy
- Jane Street Group executed large buy orders in the cash and futures market during the morning sessions on expiry days.
- These aggressive purchases pushed the index upward, misleading the market about demand levels.
- Simultaneously, they held short positions in out-of-the-money (OTM) index options.
- Once the index level was artificially elevated, they reversed the trades, causing a decline in prices.
- This enabled the Group to profit from the convergence of actual settlement prices to lower index levels, making their OTM options expire profitably.
The Company also manipulated Bank Nifty with “Extended Marking the Close Strategy”
Extended Marking the Close Strategy
- This involved placing high-volume trades closer to market close, especially in the last 30 minutes (Extended Market Close).
- Such trades artificially influenced the closing index, directly affecting the settlement price of derivatives contracts.
- For example, on January 17, 2024, the Group’s trading behavior significantly impacted the closing price of BANKNIFTY, yielding massive profits on derivative positions.
SEBI has also issued them a regulatory caution in February 2025. Despite this, the company continued it’s voilation.
As per company, it claimed that their trading was based on market signals and proprietary algorithms, not manipulative intent.
SEBI has issued interim directions under Sections 11(1), 11(4), 11B(1), and 11D and has directed Jane Street Group and entities to desist from such trading patterns. It has also prohibited them from taking large index option positions till further orders.