PRIYANSHI JAIN, FOUTH-YEAR STUDENT AT INSTITUTE OF LAW, NIRMA UNIVERSITY
INTRODUCTION
India’s ₹4,844 crore Jane Street case was not just about fraudulent trading; it attacked the very credibility of India’s securities market. It is about whether the world’s largest derivatives market is built on a settlement system that can easily be manipulated.
On July 2025, the Securities Exchange Board of India (‘SEBI’) passed an interim order against the Jane Street group, an American proprietary trading firm, for its alleged manipulation of the Bank Nifty index derivatives during expiry-day trading. The order seized nearly ₹4,844 crore and barred the firm from accessing Indian markets while proceedings continue. It was SEBI’s largest enforcement action of its kind and immediately drew attention across financial and legal circles.
The case matters because it highlights the structural flaws in India’s market framework. Unlike the United States (‘US’) and European Union (‘EU’), which use closing auctions, or Singapore, which employs randomized settlement windows, India continues to rely on a 30-minute Volume-Weighted Average Price (‘VWAP’) to settle expiries. VWAP, an indicator derived from price and volume that represents the average price of a security, is increasingly outdated. Entity-level surveillance misses group strategies and doctrinal standards under the Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003 (‘PFUTP’), which remain unclear. SEBI’s order looks powerful in the headlines, but in reality, its durability before tribunals is far less certain.
EXPIRY-DAY MECHANICS AND VULNERABILITIES
To understand why SEBI’s order matters, it is necessary to see how expiry in India works. When Bank Nifty future options expire every Thursday, their final settlement value is not taken from the last traded price. Instead, it is computed using the VWAP of the index in the last half-an-hour before trading closes. The problem lies in VWAP as it can be influenced. Large, well-timed trades placed near the close can push the average up or down, even if only slightly. This practice is known as “marking the close”, and it can tilt the expiry settlement in a direction favourable to those who hold large options positions. In theory, these trades appear genuine; however, in reality, they are buy or sell orders, and their purpose is to manipulate the benchmark rather than reflect true supply and demand.
The stakes are high as Bank Nifty is India’s most heavily-traded derivatives contract. As per SEBI’s own analysis, nearly 9/10 of retail derivatives traders lost money, with Bank Nifty options driving much of this activity. Even a slight change in VWAP can result in major retail losses. Unlike the US or EU, where expiry markets are dominated by institutions with hedging strategies, India’s market is retail-driven. This implies that structural fragilities like VWAP distortions inflict disproportionate harm on individuals who are least equipped to hedge risk. What looks like a technical flaw in design is a transfer of wealth from small investors to sophisticated firms.
VWAP was chosen to avoid the distortions of last-trade settlement, but in practice, it creates a different vulnerability: it concentrates risk in a short window that sophisticated traders can target. The Jane Street episode illustrates that the vulnerability is not in one firm’s strategy but in the structure of the expiry system itself.
LEGAL FRAMEWORK AND DOCTRINAL STANDARDS
PFUTP Regulations, 2003
SEBI’s case against Jane Street rests mainly on the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003. Regulation 3 prohibits the use of fraudulent or deceptive devices, and Regulation 4(1) bans trading practices that create a false or misleading appearance of trading or manipulate prices.
Indian tribunals have consistently required a high threshold for providing manipulation. In Ketan Parekh v. SEBI (2006), (‘Ketan Parekh’), the Securities Appellate Tribunal (‘SAT’) held that a case must show the creation of an artificial price backed by intent, not merely aggressive or opportunistic trading. In Nirma Bang Securities v. SEBI (2004), the SAT emphasised that trades must produce a false appearance; if the orders are real and executed transparently on an exchange, they may not qualify as fraud. In DSQ Software Ltd. v. SEBI (2002), (‘DSQ Software’), expiry-day manipulation was penalised, but the case turned on circular trades and matched orders, not exploitation of settlement mechanics.
Under Ketan Parekh, influencing VWAP may not amount to an “artificial” price at all, since VWAP is the legally prescribed benchmark. Under the Nirmal Bang case, Jane Street’s trades were genuine, transparent, and on-exchange, which made it difficult to argue that they created a “misleading appearance”. And unlike DSQ Software, where sham trades propped up expiry values, here the trades were economically real, albeit timed strategically. SEBI must therefore stretch precedent to fit behaviour that exploits design flaws rather than violates market integrity in the conventional sense.
SEBI ACT, 1992
The SEBI Act, 1992, grants the regulator broad powers to act in the interest of investors. Section 11 establishes SEBI’s mandate, while Sections 11B and 11D allow it to issue interim directions, including barring firms from markets. Section 12A prohibits manipulative conduct, and Section 24 provides for criminal sanctions.
Interim orders under these provisions are often passed ex-parte, which enables SEBI to act quickly. Yet their durability is fragile. On appeal before the SAT or the Supreme Court, regulators must present evidence that meets the strict doctrinal tests of “artificial price” or “misleading appearance”. As past jurisprudence shows, SEBI’s broad preventive powers are constrained by how tribunals interpret manipulation, and orders that appear stringent at first glance often face dilution when they are tested against precedent.
FPI REGULATIONS, 2019
SEBI also cited breaches of the Foreign Portfolio Investor Regulations, 2019 (‘FPIRegulations’). Regulation 20(4) restricts intraday netting of trades across affiliates. The logic is to prevent one entity from using multiple arms to take offsetting positions. However, India’s surveillance remains entity-based, not consolidated. If affiliates or sub-accounts operate in coordination, their trades may escape detection unless positions are aggregated at the group level.
This creates a structural blind spot. SEBI can penalise one entity, but coordinated strategies across multiple offshore vehicles may remain invisible. The Jane Street episode underscores how global trading firms can exploit the limits of surveillance architecture rather than simply breaching the letter of the law.
SEBI’S INTERIM ORDER: STRENGTHS AND LIMITS
SEBI’s interim order against Jane Street was notable for its speed and scale. Within days of the expiry, SEBI had impounded nearly ₹4,844 crore and imposed a trading ban. The sheer size of the disgorgement sent a deterrent signal not only to foreign portfolio investors but also to domestic proprietary desks that expiry-day strategies would be scrutinized closely. By framing the order around retail investor protection, SEBI strengthened its optics: Bank Nifty is retail-heavy, and positioning the case as a defence of small investors bolstered regulatory legitimacy. SEBI’s action is depicted as forceful yet legally fragile, because proving manipulation under PFUTP technically requires showing an artificial or misleading price, and Jane Street’s on-exchange, economically significant trades may be viewed as lawful VWAP exploitation unless regulators prove the trades lacked any legitimate economic purpose, a stance appellate bodies like the SAT have taken in narrowing “manipulation” in past cases. The order also highlights a surveillance gap: by focusing on entity-level positions, current systems may miss coordinated strategies run across affiliates or sub-accounts, implying that without group-level oversight enforcement can become piecemeal, penalizing one entity while broader structure remains unaddressed. The upshot is a recurring cycle where headline penalties signal resolve, but fragile legal footing leads to dilution or reversal on appeal unless settlement frameworks and surveillance architectures are overhauled to withstand scrutiny and capture cross-entity orchestration at scale.
COMPARATIVE INSIGHTS AND REFORM DIRECTIONS
India should pivot from a 30-minute VWAP expiry to transparent closing auctions or hybrid windows to curb benchmark tilts and concentrate integrity where liquidity is deepest. Sequencing pilots on F&O names and phasing towards auctions aligns with global practice and SEBI’s active consultations, while guarding liquidity optics. At the same time, regulators should mandate group-level disclosures and beneficial ownership look-through, operationalized via standardized, trigger-based reporting and a lead-regulator model. Cross-border Memorandum of Understandings with explicit timelines and data schemes should backstop enforcement against SPVs and secrecy regimes. Finally, the pair auction closes with AI-assisted surveillance under human oversight, restrained on labelled expiry datasets to manage false positives.
CONCLUSION
The Jane Street episode underlines that India’s episode underlines that India’s expiry framework itself is vulnerable. VWAP-based settlement concentrates risk in a narrow window, while entity-level surveillance misses coordinated strategies across affiliates. These are not flaws of one case but of the market’s design.
Doctrinally, SEBI also faces hurdles. Under the PFUTP Regulations, tribunals have demanded proof of “artificial prices” or “misleading appearances”. Jane Street’s trades, though large and well-timed, were real and visible. This ambiguity may weaken SEBI’s case before appellate forums, showing how difficult it is to stretch the old standard to new trading strategies.
The policy lesson is straightforward: in the absence of change, SEBI will continue to act reactively, making headlines by penalizing people after the fact while running the risk of legal reversals. Reliance on VWAP and fragmented oversight leaves India exposed in ways other major markets have already addressed through auctions, randomization, and consolidated monitoring.
For the world’s largest derivatives market, with millions of retail traders, the demand is simple that India’s framework should be at least as robust as that of the US or EU. Anything less risks repeating the same cycle.
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