# How Jane Street Made $4.3 Billion in India—Then Got Banned!

An episode of [Patrick Boyle On Finance](https://invisiblenetwork.ai/podcast/1547740313), 15 Jul 2025, 23 min.

Audio: https://traffic.megaphone.fm/APO6875560024.mp3

Jane Street, a prominent quantitative trading firm, has been at the center of controversy in India regarding its options trading activities. The Securities and Exchange Board of India (SEBI), have accused Jane Street of market manipulation and temporarily banned the firm from accessing the Indian securities market and are seeking to recover substantial profits, allegedly earned through these activities. The Indian regulators actions against Jane Street have sparked debate within the financial industry about the nature of sophisticated trading strategies and the Patrick's Books: Statistics For The Trading Floor: https://amzn.to/3eerLA0 Derivatives For The Trading Floor: https://amzn.to/3cjsyPF Corporate Finance: https://amzn.to/3fn3rvC Ways To Support The Channel: Patreon: https://www.patreon.com/PatrickBoyleOnFinance Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle

## Transcript

[0:00] In India's stock market, the tail wags the dog.
[0:03] Derivatives trading doesn't just rival cash equities, it dwarfs
[0:07] it. Derivatives turnover is more
[0:10] than 300 times higher than cash equities turnover.
[0:14] And this inversion, driven by an army of options hungry retail
[0:17] traders, is unmatched anywhere else in the world.
[0:21] This imbalance created a market where expiry day price movements
[0:26] could be dramatically influenced by a handful of well timed
[0:29] trades, and where retail investors, often trading would
[0:33] 100 times leverage, make wild bets.
[0:37] In a market like this, speed, scale and precision are highly
[0:41] rewarded. So for sophisticated trading
[0:44] firms like Jane St., Indian options trading has been a
[0:47] goldmine, netting the firm more than $4 billion in profits over
[0:52] the last two years. Until it wasn't.
[0:56] Last week, India's financial regulator, the Securities and
[1:00] Exchange Board of India, known as Sebi, accused Jane St., a
[1:04] global quant trading firm that uses technology and quantitative
[1:08] analysis to trade, of exploiting this structural quirk to
[1:13] orchestrate what they describe as a sinister scheme of index
[1:17] manipulation. India's securities regulator
[1:21] banned the firm from the country's markets and ordered it
[1:24] to return more than $550 million in alleged illegal gains.
[1:30] James St. denies these charges and insists that it was merely
[1:35] engaging in standard arbitrage trades.
[1:38] The case is not just exposed Jane St's trading strategy, it's
[1:43] laid bare the fragility of a market where derivatives
[1:46] dominate, retail investors gamble wildly and the line
[1:50] between arbitrage and manipulation is dangerously
[1:54] thin. It wasn't always this way in
[1:56] India. For much of the 2000s and early
[1:59] 20 tens, India's stock markets were considered unattractive by
[2:04] fast-paced traders. The combination of high
[2:07] transaction costs, regulatory restrictions and infrastructure
[2:11] limitations kept many global quant firms at Bay.
[2:15] The most significant deterrent was the securities transaction
[2:19] tax, a levy on every trade regardless of profit or loss.
[2:24] While small in percentage terms, this tax added up quickly for
[2:28] strategies that relied on thousands of intraday trades.
[2:32] Foreign portfolio investors also faced restrictions on intraday
[2:37] short selling, limiting their ability to run long, short or
[2:41] market neutral strategies. Meanwhile, access to leverage
[2:45] was tightly controlled and colocation services lagged
[2:49] behind global standards. Because of this, India's markets
[2:54] were dominated by traditional brokers, long only funds and
[2:58] retail investors. This all began to change in the
[3:02] late twenty 10s when the National Stock Exchange began
[3:05] upgrading its infrastructure, offering better APIs and Co
[3:09] location services. Regulatory reforms allowed more
[3:13] flexibility in derivatives trading, especially for foreign
[3:17] portfolio investors operating through locally incorporated
[3:21] entities. And most importantly, the
[3:23] explosion of retail participation fueled by mobile
[3:27] trading apps, 0 Commission brokers and pandemic era boredom
[3:32] transformed India's derivatives market into a high volume, high
[3:36] volatility playground. India's stock market went from
[3:40] being a sleepy back water to the epicenter of a global
[3:44] derivatives frenzy. While Wall Street still
[3:47] dominates in equities and bonds, Mumbai's National Stock Exchange
[3:51] leads the world in options trading volumes.
[3:55] In 2024, India accounted for a staggering 89% of global equity
[4:00] options volume, according to the Futures Industry Association,
[4:04] surpassing even the S&P 500 in daily notional turnover.
[4:10] This explosion has been fueled by a surging retail investor
[4:14] base, the rise of discount brokerages in India, and the
[4:18] introduction of zero data expiration options.
[4:21] These are options contracts that expire the same day that they
[4:25] are created and have quickly become the hottest ticket in
[4:29] Indian finance, offering the promise of quick profits with
[4:33] minimal capital. For many young Indians, trading
[4:37] options has become a form of financial entertainment.
[4:40] Unfortunately, it's not going that well for them.
[4:44] India's securities regulator reported earlier this year that
[4:48] 9 out of 10 Indian retail traders are losing money in the
[4:51] market as it unveiled plans to raise barriers to trading and
[4:56] temporarily ban some prominent fin influencers that young
[5:00] people looked up to for financial advice.
[5:03] Over the last five to 10 years, the Indian stock market has
[5:06] shown strong and consistent growth, outperforming many
[5:10] global and emerging markets. Not even America's S&P 500, home
[5:15] to seven of the world's $8 trillion companies, has managed
[5:20] to keep pace. That outperformance has turned
[5:23] the country's stocks into a favorite with global investors
[5:27] who've been shunning Chinese equities amid a domestic
[5:30] slowdown and geopolitical tensions with the US.
[5:34] Despite this massive performance, individual
[5:37] investors in India have managed to suffer significant losses
[5:41] through their trading. According to a Sebi study
[5:43] released this Monday, mom and pop traders lost a combined $33
[5:48] billion over the last four years despite the huge uptrend and
[5:53] repeated warnings from regulators about the high risks
[5:56] of competing with better funded and more experienced market
[6:00] players. The Economist points out that
[6:03] the sudden explosion in derivatives trading in India has
[6:07] many parallels with America's meme stock craze, which still
[6:11] hasn't ended. The Covic lockdowns five years
[6:14] ago, according to The Economist, spawned a generation in India
[6:18] who turned to day trading to escape boredom.
[6:22] The numbers are dizzying. The notional value of index
[6:25] options traded on the NSE more than doubled in the last year
[6:29] alone to $907 trillion. The number of investor accounts
[6:35] has tripled over the last five years to over 160 million.
[6:40] Mutual fund assets under management have doubled to $706
[6:45] billion. It's not just money that's been
[6:48] lost either. Two years ago, a 26 year old
[6:51] software analyst jumped from his office building in Chennai after
[6:56] taking out a $12,000 bank loan and losing the money trading.
[7:01] This stock market environment, liquid, volatile and
[7:05] increasingly retail driven, has been a magnet for global
[7:08] proprietary trading firms. James St. was amongst the most
[7:12] aggressive. By 2024, it was reportedly
[7:16] making over a billion dollars a year trading options in India.
[7:20] The firm's strategies, honed in the world's most sophisticated
[7:23] markets, found fertile ground in India's fast moving, lightly
[7:28] regulated derivatives ecosystem. As the profits soared, so did
[7:33] regulatory anxiety. India's regulators had already
[7:37] started tightening rules late last year, raising minimum
[7:41] contract sizes and warning brokers to disclose the risks of
[7:45] options trading. According to the regulator,
[7:48] their concern was not just about volatility, it was about
[7:52] fairness. And when Jane St's trades began
[7:55] to dominate expiry day volumes in key indices like Bank Nifty,
[8:00] they claimed that their concerns deepened.
[8:03] Jane St's Indian operations kicked off in 2020 when it
[8:08] established a local entity in Mumbai.
[8:11] By 20/23, it had become one of the largest foreign participants
[8:15] in India's derivative markets, according to the securities
[8:19] regulator. The firm made approximately $4.3
[8:22] billion in profits between January 2023 and March 2025,
[8:28] most of it from trading index options.
[8:31] Very little attention was paid to the goings on in India until
[8:35] April 2024, when Jane St. drew attention to themselves by
[8:40] filing a lawsuit in Manhattan against a rival hedge fund,
[8:44] Millennium Management, who hired two former Jane St. traders.
[8:49] The lawsuit alleged that the traders had stolen a highly
[8:53] valuable, unique and proprietary trading strategy, which was
[8:57] later revealed by Millennium to relate to India's booming
[9:01] options market. James St. and Millennium settled
[9:05] the lawsuit in December, but the Indian securities regulator
[9:09] appears to have taken notice. The two of the biggest trading
[9:13] firms in the world were fighting over a trading strategy focused
[9:17] on their securities market. By this time last year, India's
[9:21] National Stock Exchange had been asked to examine Jane St's
[9:24] trades. In February 2025, Sebi issued a
[9:28] formal caution letter warning the firm to refrain from large
[9:33] expiry day positions and manipulative trading patterns.
[9:37] James St. responded promising to adjust its strategies, but
[9:41] according to Sebby, the firm resumed similar trades by May,
[9:45] prompting the regulator's most aggressive enforcement action in
[9:49] years. At the heart of Sebi's case is a
[9:52] strategy it calls intraday index manipulation.
[9:57] The regulator's analysis focuses on expiry days, the days when
[10:01] options contracts settle based on the closing value of an index
[10:05] like Bank Nifty, a stock market index that tracks the
[10:09] performance of the banking sector in India.
[10:12] The alleged scheme, according to Sebi, had two phases which they
[10:16] refer to as patch one and Patch 2.
[10:19] In patch one, which occurs in the morning, they alleged that
[10:22] Jane St. aggressively bought large volumes of Bank Nifty
[10:26] constituent stocks and futures, pushing the index higher.
[10:31] Simultaneously, they allegedly built massive short positions in
[10:35] the much more liquid options by buying cheap put options and
[10:40] selling expensive call options at prices which the regulators
[10:44] allege were distorted by their buying activity in the less
[10:48] liquid stocks in Patch 2, which occurs in the afternoon.
[10:53] Once the options positions were in place, Jane Street is accused
[10:57] of reversing course by dumping their long positions in the less
[11:01] liquid stocks and futures, driving the index down,
[11:05] inflating the value of the puts and deflating the value of the
[11:08] calls which they were short, generating enormous profits.
[11:13] Sebi focuses in on Jane St's trades on January 17th, 2024,
[11:19] when Jane St. allegedly made about $86 million in a single
[11:24] trading session, with trades accounting for up to 25% of
[11:28] Market Volume in some Bank Nifty constituents.
[11:32] Their detailed analysis of that day includes minute by minute
[11:36] breakdowns of Jane St's trades, their market impact, and the
[11:40] resulting profits from option positions, making it the
[11:44] centerpiece of the regulator's case.
[11:47] Their data shows that Jane St. lost money in the cash and
[11:50] futures market, but more than made-up for those losses in
[11:54] options. Sebi estimates that James St's
[11:57] net trading value that day came in at around $511,000,000, which
[12:03] was more than three times the size of the market's second
[12:06] largest player and about 15 to 25% of the entire market's
[12:11] traded value. Over the course of eight
[12:14] minutes, they say James St. had built a long position of $67
[12:19] million. This buying almost single
[12:22] handedly helped lift the Bank Nifty index by over 1% over the
[12:27] course of the buying spree, according to the Indian
[12:29] financial watchdog. They argue that these losses
[12:33] were not incidental but deliberate, a cost incurred to
[12:37] manipulate the index and profit from options.
[12:41] Their report says there's no economic rationale possible to
[12:45] justify such trading activity on a stand alone basis, going on to
[12:50] say by preponderance of probability.
[12:53] These trades were undertaken only to distort Bank Nifty index
[12:57] option prices. Sebi claim to have identified a
[13:01] second trading pattern, which it calls extended, marking the
[13:05] close. In this variant, Jane Street is
[13:08] alleged to have built large options positions during the
[13:11] day, then executed aggressive trades in the final hour to
[13:15] influence the index's closing value.
[13:18] On July 10th, 2024. The regulator highlights that
[13:22] the firm allegedly sold large amounts of Bank Nifty
[13:26] constituent stocks and futures in the final hour of trading,
[13:30] just as its options positions would benefit from a lower index
[13:34] close. A similar pattern, they claim,
[13:36] was observed on May 15, 2025, this time with bullish trades
[13:41] designed to push the index price higher.
[13:44] In both cases, Sebi alleges that Jane St's trades were not about
[13:49] hedging our liquidity, they were about engineering a favorable
[13:53] expiry price. James Freed has strongly denied
[13:57] the allegations. In an internal memo to staff,
[14:01] the firm says that it was beyond disappointed by Sebby's
[14:04] inflammatory language and would contest the findings.
[14:08] The firm argues that its trades were standard index arbitrage,
[14:13] designed to profit from misaligned prices between
[14:15] options and their underlying stocks.
[14:18] This activity is unambiguously good for the health of financial
[14:22] markets, the memo said. In the absence of participants
[14:26] like Jane St. there would be no economic link between the Indian
[14:30] derivatives markets and the underlying economy.
[14:34] Jane St. also disputes Sebby's methodology, particularly its
[14:39] use of market impact metrics to infer intent.
[14:44] Matt Levine wrote an excellent piece on this earlier this week
[14:47] where he explained why there's so much derivatives trading in
[14:51] India, and then made the case that Sebby's case is not as
[14:55] strong as it may at first appear to be.
[14:58] As to why Indians trade so many options, Levine explains that
[15:03] when you compare the Indian market to other big markets,
[15:06] it's much harder to get leverage on cash stock positions in India
[15:10] or to sell stock short. Because of this, lots of
[15:14] leveraged and long short trading strategies are harder to do in
[15:18] India, but options, which do offer a lot of leverage, are a
[15:22] decent substitute and allow traders to do the sort of trades
[15:26] that would be implemented using stocks in other markets.
[15:30] Additionally, some trading strategies that have to be
[15:34] implemented using stocks, like arbitraging options versus the
[15:38] underlying stocks, are harder to do in India.
[15:41] So some arbitrages won't close and some spreads will be wider.
[15:47] There's something completely bizarre about the fact that on
[15:50] some days, the Indian options market is 350 times bigger than
[15:54] the Indian stock market. And it's easy to see how you
[15:58] could get in trouble trading Indian options as while they're
[16:01] more liquid than Indian stocks, they are priced and settled
[16:05] based on the price of Indian stocks.
[16:07] If you can move the stock prices, you'll move the option
[16:10] prices. And the options are easier to
[16:13] trade, while the stock prices are easier to move.
[16:17] There's no way around it. It's a very strange market
[16:20] dynamic, and a market like this almost has to be inefficient.
[16:25] Levine concludes that legitimately doing an arbitrage
[16:28] trade and trading in one market to manipulate prices in another
[16:32] market look pretty similar. And he jokes that the difference
[16:36] between legitimate arbitrage and manipulation often comes down to
[16:41] whether you sent an e-mail saying lol, I just manipulated
[16:45] the market or not. Sebys case rests on Indias
[16:49] prohibition of fraudulent and unfair trade practices
[16:53] regulations as well as Section 12A of the Sebi Act.
[16:57] These provisions prohibit any action that creates a false or
[17:01] misleading appearance of trading or manipulates the price of a
[17:05] security or index. The regulator also cites the
[17:09] Supreme Court's 2018 ruling in Sebi versus Raki Trading, which
[17:15] held that intentional loss making trades can be evidence of
[17:19] manipulation. Nobody intentionally trades for
[17:23] a loss to Court Road, and intentional trading for loss per
[17:27] SE is not a genuine dealing in securities.
[17:31] Sebes interim order is not a final judgment.
[17:35] James St. has 21 days to respond and request a hearing, but the
[17:39] regulator has already frozen the firms accounts and ordered it to
[17:43] deposit a $566,000,000 in an escrow account.
[17:48] The Indian ban is a blow to James St's global operations as
[17:53] not only did India account for around 14% of the firm's trading
[17:57] revenues in 2023, it was also one of its fastest growing and
[18:01] most profitable markets. The firm's $4.3 billion in
[18:06] Indian profits over 2 years came at a time when global investors
[18:11] were pulling back from China and looking to India as the next big
[18:15] frontier. The James St. saga is more than
[18:19] a story about one firm's alleged misconduct.
[18:22] It's a test case for how regulators in fast growing
[18:25] markets respond to the rise of algorithmic trading, high
[18:29] frequency strategies and the increasing complexity of global
[18:33] capital flows. For India, the case is a chance
[18:37] to reassert regulatory authority after years of criticism, most
[18:42] notably for its muted response to the Adani Hindenburg affair.
[18:46] For Wall Street's quant trading firms, it's a warning.
[18:50] The strategies that work in New York or London may not translate
[18:54] cleanly to other countries. And in markets where
[18:57] unsophisticated investors dominate and regulators are
[19:01] under pressure to protect them, the line between arbitrage and
[19:05] manipulation might be thinner and more dangerous than it
[19:08] appears. As James St. prepares its legal
[19:12] defense and Sebi continues its investigation, one thing is
[19:16] clear. The error of quiet profits been
[19:19] earned by professional traders in India's derivative market may
[19:23] be over. While Sebby's 105 page interim
[19:27] order paints a picture of deliberate and sinister
[19:30] manipulation, not everyone is convinced.
[19:34] As Robin Wigglesworth wrote in the FT, what might look like
[19:38] market manipulation could in fact just be arbitrage.
[19:41] And what might look like arbitrage can in fact be market
[19:45] manipulation. As Matt Levine pointed out on
[19:48] January 17th, 2024, the date highlighted in Sebi's interim
[19:53] order, the options market was trading at a 1.6% premium to the
[19:58] underlying index that morning. And mispricing that an
[20:02] arbitrager would naturally exploit by selling the
[20:05] overpriced options and buying the cheaper underlying stocks.
[20:09] This is textbook arbitrage IF2 identical assets.
[20:13] Here the cash index and the options derived.
[20:16] The index trade at different prices.
[20:19] You buy the cheap one and sell the expensive 1, and that's what
[20:22] James St. did. Levine also points out a
[20:25] critical flaw in Sebby's narrative.
[20:28] The options prices didn't rise during James St's alleged
[20:32] manipulation. They fell while James St. was
[20:35] buying the underlying stocks. The prices of options on that
[20:39] index were going down, and that's not what you'd expect if
[20:43] they were pumping the index to inflate options premium.
[20:47] The lack of clarity as to the intent of a trader can be
[20:50] particularly difficult to discern with high frequency
[20:54] index arbitrage strategies, where trades in one market are
[20:57] being done to hedge or exploit pricing in another.
[21:01] Legitimately doing an arbitrage trade and trading in one market
[21:05] to manipulate prices in another market look pretty similar,
[21:09] Levine writes. Ultimately, a good argument can
[21:12] be made that Jane St's trades may have made markets more
[21:17] efficient, not less. Instead of paying a 1.6% premium
[21:21] to take a position in the options market, retail investors
[21:25] could pay next to no premium if Jane St. pushed the options
[21:29] prices down and closed the arbitrage.
[21:32] It's worth stepping back to consider the sobering statistic
[21:36] that Indian retail investors managed to lose an estimated 33
[21:40] billion dollars trading options over the past four years,
[21:44] despite the fact that the broader market that they're
[21:47] investing in has gone straight up.
[21:50] These staggering losses, confirmed by Sebby and cited in
[21:53] the Financial Times, are not the result of a single sinister firm
[21:57] strategy or a regulatory blind spot.
[22:01] It's the product of a system that encouraged millions of
[22:04] individuals to gamble on highly leveraged short term trades in
[22:09] one of the world's most volatile market.
[22:12] As Anat Narayan, a Sebi board member, noted in a public
[22:15] lecture in January, a bulk of small investor losses were
[22:20] specifically in trading, indeed over trading in index options on
[22:24] expiry day when premiums are very small.
[22:28] In other words, the problem wasn't just the market
[22:31] structure, it was investor behavior.
[22:35] The lesson here is not just for regulators or trading firms.
[22:38] It's for the millions of retail investors who were drawn into
[22:42] the options frenzy by the promise of quick profits and the
[22:46] allure of financial influencers. In a rising market, the simplest
[22:51] strategy, buying and holding quality stocks, would have
[22:54] outperformed the vast majority of leveraged trading bets.
[22:59] Jane Street may have exploited inefficiencies in India's
[23:02] derivatives market, but the far greater tragedy is that so many
[23:06] individual investors, armed with smartphones and leverage, chose
[23:10] to bet against the odds and lost.
[23:13] Thanks again for tuning into this week's podcast.
[23:16] If you enjoyed it, I'd really appreciate you sending a link to
[23:19] a friend, as word of mouth is the best way for a podcast to
[23:22] grow. Talk to you again in the next
[23:25] one. Bye.

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