In April 2024, Jane Street – one of the world’s most secretive trading firms – did something uncharacteristic. It went to court. The firm sued rival hedge fund Millennium Management in New York, accusing two former employees of stealing a trading strategy.
Not just any strategy. One that, according to Jane Street, had earned it nearly a billion dollars. The focus of the trade? India’s Bank Nifty options.
That’s where this story begins, say Krishna Jha, a Bengaluru-based investor, and Ashwani Gupta, an Ahmedabad-based futures and options trader.
The lawsuit was settled quietly later that year. But by then, the secret was out. A little-known index with just 12 stocks had become the centrepiece of one of the most lucrative – and contentious – trading schemes in global finance. And soon, India’s market regulator Sebi was asking hard questions. Who was gaming the expiry-day moves in the Bank Nifty? How? And more importantly: why had no one noticed?
It wouldn’t take long for the investigation to circle back to where it began – with Jane Street, and a market that turned out to be more gameable than anyone had publicly admitted.
And so, every Thursday, till earlier this year, the same script played out across India. Expiry day. The kind of day when seasoned traders keep one eye on the screen and the other on the clock.
Somewhere in Surat, a young trader would open his app. He had placed a trade on Bank Nifty options – a side bet on where the market will land by 3.30pm. If the index closed where he predicted it would, the payout would have been big. If it did not, the bet disappears like it never existed. He never fully understood how it worked. But the buy-in was just under ₹5,000; small enough to feel harmless.
By 3.25pm, the screen would be bleeding red. The market would whip up. Then down. His trades would be worthless. And it would happen time and again. What he didi not know, and what even many veteran traders didn’t, was that someone else might have seen this coming. Or worse, helped shape it.
Because far away, in an office with no signage and fewer headlines,was a firm that rarely showed up on CNBC or in retail WhatsApp groups. It did not sell tips. It did not manage mutual funds. It did not even have clients in the conventional sense.
Its name? Jane Street.
And in July , India’s market regulator Sebi barred it from trading in Indian derivatives markets. Not because it lost money – but because it made far too much.
What Is Jane Street?
Jane Street is what traders call a prop firm-a proprietary trading house. It doesn’t take your money or anyone else’s. It uses its own. What it does is watch markets obsessively, run mathematical models most humans wouldn’t understand, and use algorithms to execute thousands of trades a second.
It’s big. Quietly so. Globally, it moves hundreds of billions daily. In India, few outside institutional circles had heard of it. Until SEBI froze ₹4,843 crore of its profits, accusing it of manipulating the expiry of index options.
Sebi claims that Jane Street’s strategy began early in the trading day. The firm would quietly buy large quantities of certain stocks, which would have the effect of nudging the index upward. Then it would place trades-called options – that would gain in value if the index were to fall later in the day.
By the afternoon, just before 3:30 p.m. when these contracts expired, Jane Street would unwind those stock purchases. This move, Sebi alleges, helped push the index downward – making those earlier bets pay off. It’s a bit like blowing air into a balloon all morning, and then letting out just enough before time’s up – while holding the only ticket that wins if the balloon shrinks.
Jane Street denies any wrongdoing. It says this was standard trading practice-looking for tiny price mismatches between the overall index and the individual stocks that make it up. For instance, if the Nifty index is trading slightly higher than the combined value of its top 50 companies, Jane Street might buy those stocks and simultaneously sell the index, expecting the gap to close. When it does, they pocket the difference.
This is known as arbitrage. It happens in milliseconds, thousands of times a day, powered by code. According to Jane Street, it’s not manipulation – it’s just fast math and smarter timing, all within the bounds of market rules.
But what made this possible wasn’t just speed or software. It was the index itself.
Bank Nifty, the benchmark Jane Street allegedly gamed, comprises just 12 stocks. That’s unusually concentrated for an index with such massive derivative volume. In this setup, HDFC Bank plays an outsized role. As the largest weighted component, even modest buying in HDFC Bank can move the index just enough to skew expiry prices. That’s what Jane Street allegedly exploited – not a loophole, but a design flaw hidden in plain sight.
The Bank Nifty’s fragility, market observers such as Gupta say, lies in its architecture. A well-balanced index typically includes 30 or more constituents. With just 12, Bank Nifty allows a handful of heavyweight stocks to disproportionately influence the index’s direction. It’s like steering a ship with just one oar – easy to turn, easier to capsize.
Sebi wakes up. But why now?
To Sebi’s credit, it didn’t act on a hunch. The National Stock Exchange (NSE) first noticed strange expiry-day distortions in early 2024. In February 2025, it sent Jane Street a caution letter. SEBI’s formal action came five months later.
What unfolded in that interim is opaque. Jane Street says it met with Sebi and NSE several times. It shared data. It adjusted its trades. Nothing, it claims, was flagged as illegal. Until suddenly, it was.
But for many market veterans, the issue runs deeper than delayed reaction. It’s about institutional readiness, or the lack of it. While much of the attention has turned to Sebi, some of the more pointed questions are being asked of NSE.
Gupta believes NSE appears to be drifting and responding to crises instead of anticipating them. For a market this complex, it’s not enough to serve as a venue. The exchange has a responsibility to maintain structural integrity. That includes asking whether indices like the Bank Nifty are robust enough, whether expiry-day volatility is being monitored closely enough, and whether the incentives baked into the system reward manipulation over market health.
Sebi has pushed back against suggestions of delay, insisting that investigations began much earlier and that regulatory action followed due process. Here too, Gupta offers a clear view: ‘SEBI has done a good job in detailing the transactions and freezing the assets. NSE and the brokers have failed.”
His point is, the problem didn’t begin under the current SEBI leadership. If anything, he says, the regulator’s latest reports are almost surgical in how they trace the mechanics of manipulation. The failure, then, isn’t recent-it’s structural. And Jane Street may have simply taken the existing rules to their logical, uncomfortable limit.
The numbers Sebi can’t ignore
In September 2024, Sebi released a report that should have set off alarms nationwide. It revealed that 93% of over 10 million individual traders in the equity futures and options (F&O) market lost money between FY22 and FY24. Not just pocket change. Some reports have it that the average loss is ₹2 lakh per person. Gupta’s data has it the average loss for retail investors are lower at ₹1 lakh.
The numbers got worse the closer you looked. The top 3.5% of loss-makers-nearly 4 lakh people-bled an average of ₹28 lakh each. On the other hand, only 1% made profits exceeding ₹1 lakh.
Who made the real money? Not retail traders. It was proprietary trading firms and foreign portfolio investors. In FY24 alone, they earned a gross trading profit of ₹61,000 crore. Sebi noted that nearly all of it-over 95%-came from algorithmic trades.
These profits weren’t free. Retail traders spent ₹50,000 crore on transaction costs over three years. More than half of that went in brokerage fees. One in four rupees went to the exchanges themselves.
This wasn’t just a money issue. It was a demographic one. Young traders under 30 now made up 43% of all F&O players. And over 72% came from beyond India’s top 30 cities. Most earned less than ₹5 lakh a year.
These were not market experts. They were engineers, salesmen, teachers, gig workers. Betting on options as if they were buying scratch cards. Losing money hand over fist, but coming back for more.
Jha says, “This isn’t a niche anymore. This is a national addiction.”
Everyone’s dancing in the rain
One head of a Mumbai-based Asset Management Company has been tracking the shift closely. What worries him isn’t just the behaviour of retail investors. It’s the changing instincts of veterans who should know better.
“There was a time when these people wouldn’t touch penny stocks or get into exotic derivatives,” he said. “Now, they’re placing bets on microcaps and dancing with options.”
These are market participants with decades of experience. Their portfolios run into hundreds of crores. Yet even they, he said, have been swept up in the fear of missing out.
But there’s more to it than just the fear of missing out (FOMO).
Business, as one market expert put it, has been slow. Credit cycles are muted. Private capital expenditure is flat. Entrepreneurs aren’t borrowing, and corporate treasuries are flush but cautious. So where does the money go? Increasingly, it drifts into high-risk segments – F&O, microcaps, and speculative structures-because that’s where the buzz is. It isn’t just greed. It’s a search for movement in a market that feels otherwise stalled.
“Everyone is dancing in the rain,” the AMC head said with a laugh. “Even the people who used to carry umbrellas.”
He’s not being poetic. He’s being blunt. The exuberance of the past few years, when markets mostly moved in one direction, has scrambled investor judgement. Even those who once believed in value investing now want 40-50% annual gains. The old comfort of 12-18% returns just doesn’t excite anymore.
And it isn’t just seasoned investors. There’s a new wave entering the fray – second- and third-generation scions of business families, and foreign-educated returnees looking to “do something in finance.” Ask them what exactly they want to build, and the answer often arrives wrapped in jargon: structured products. But scratch beneath the surface, and the ideas are vague. Most of them have seen how trading works in the US. They just haven’t grasped how different India’s market structure really is.
Jha put it more bluntly: “We are a nation of speculators, like nobody else.” To make his point, he shared some numbers that drive the point home:
These aren’t just statistical outliers. They point to something structural. Derivatives in India are no longer a hedge or a tool. They are the show. “And if crypto was banned in the name of investor protection, why not F&O?” investors like him ask.
Even Warren Buffett once called derivatives “weapons of mass destruction.”
Who’s asking the hard questions?
One of the most unsettling threads to emerge from the Jane Street episode isn’t about one firm’s strategy-it’s about the silence that preceded it. “This didn’t happen overnight,” the AMC head pointed out. “It’s been going on for a long time. So what were Sebi and NSE doing all this while?”
According to Jane Street, they didn’t operate in the shadows. The firm claims it had been in regular contact with both Sebi and NSE for months, sharing data, explaining trades, and even adjusting strategies. A Financial Times report cited internal memos suggesting that when Jane Street asked for clarity, it was rebuffed. Reuters confirmed Sebi only widened its probe after Jane Street’s outsized profits began attracting attention.
Was the regulator blindsided? Or simply slow? Perhaps both? Or neither?
On his part, Gupta points out, Sebi’s current leadership has produced some of the most precise forensic reports on how manipulation happens. “To blame the current chief who took charge four months ago is unfair “. The issue, he argues, is cumulative: a build-up of lax oversight that was evident of NSE, poor structural design of the index, and a culture of speculative impunity that has taken over the market. Jane Street wasn’t the problem. It was the catalyst that forced everyone to look.
What now?
Jane Street may be the headline today. But the story isn’t really about Jane Street. It’s about us.
What we’ve built is a market where the rules are visible, but their enforcement is selective. Where participation is exploding, but literacy is lagging. Where losses are individual, but the system is collectively complicit.
Sebi’s own report shows that 93% of F&O traders lose money. Most are young, from small towns, earning less than ₹5 lakh a year. They’re not financial engineers. They’re aspirants. Betting paychecks on what looks like a shortcut to wealth.
That should have been reason enough to act. But it wasn’t. Not until Jane Street’s trades became too large. Too successful. Too foreign. This isn’t a call to ban derivatives. Nor a defence of those who misuse them. It’s a call for clarity.
If these instruments are legal, why not educate the public? If they’re too dangerous, why allow them in the first place? And maybe it’s time to ask: should retail investors with modest incomes be allowed to trade in leveraged products at all?
The irony is that Jane Street’s real sin may not have been gaming the system. It may have been revealing how gameable it already was.
Now that we know that, the bigger question isn’t who profited. It’s who’s still losing.