SEBI’s Jane Street Order: Unpacking HFT Manipulation and Regulatory Shortfalls

[Akshansh is a student at Gujarat National Law University.]

On 17 January 2025, Jane Street—a global proprietary trading firm headquartered in New York—allegedly earned a staggering INR 735 crores returns in a single day by implementing high frequency trading algorithms (HFTs) on Indian bourses through high-frequency algorithmic trading. Between January 2023 and March 2025, its profits from such trading strategies are estimated to have exceeded INR 36,000 crore.

In a 6 February 2025 letter, the Securities and Exchange Board of India (SEBI) told Jane Street, “The above trading activity prima facie appears to be fraudulent and manipulative.” However, it did not issue its order curbing Jane Street until 3 July 2025. On 3 July 2025, the SEBI issued a hefty 105-paged interim order against Jane and its affiliated entities, citing large-scale market manipulation and misconduct. The order stated that “by preponderance of probability, there is no economic rationale that can account for this sudden burst of large and aggressive activity … other than the intent to manipulate the price of securities and index benchmark.”

According to SEBI, Jane Street built significant long positions in National Stock Exchange (NSE) Bank Index stocks, while simultaneously shorting index options. Just before market close, it allegedly reversed its equity and futures positions, depressing the index and profiting substantially from its derivative exposures. SEBI subsequently barred the firm from trading in Indian markets and directed the impounding of alleged unlawful gains.

Regulatory Infractions

SEBI’s interim order dated 3 July 2025 alleges that Jane Street, through its Indian and offshore affiliates, conspired together to engage in intraday buildup of long positions in the cash and futures segments of NSE Bank Index stocks, paired with large short positions in index options, followed by a reversal of those cash and futures trades close to market settlement. This pattern, according to SEBI, artificially impacted the closing prices of the index, resulting in disproportionate profits from the short option positions. SEBI held that such conduct violated provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations 2003, specifically Regulation 3 (prohibiting manipulative, fraudulent, or unfair trade practices) and Regulation 4(2)(a), (b), (e), and (g), which cover, among other things, transactions lacking genuine economic intent and those intended to manipulate the price of securities.

Additionally, the interim order shines light on circular trading and reversal patterns between Jane Street’s Indian arm (JSI Investments Private Limited) and its affiliates. These established patterns raised red flags under SEBI’s Surveillance Manual (2021), which lays down guidelines as to activities that can be referred to as hallmarks of manipulation, and as such, the synchronized trading patterns coupled with reversal of positions fell within its ambit. These actions also fall prey to the provisions of the SEBI (Stock Brokers) Regulations 1992, particularly Clause A(2) of the Code of Conduct under Schedule II, which mandates that brokers shall “not indulge in manipulative or deceptive transactions.” Furthermore, it must also be brought to notice the two circulars, namely, SEBI’s Algorithmic Trading Circular (2025) and subsequent API-based Algo Framework (2022) both of whose provisions require all algorithmic strategies used in Indian markets to be pre-approved, audited, and lastly, be deployed with real-time risk controls left to the SEBI. It was observed that the framework so established was circumvented by Jane Street, by way of execution of certain intraday strategies spread across an array of multiple proprietary entities which upon due diligence were found to be of no meaningful separation or pre-clearance of the underlying strategy.

The Aftermath

Jane Street has formally disputed SEBI’s findings and has engaged legal counsel to represent its position before SEBI in the case. It has deposited INR 48.43 billion ($567m) (the sum identified as alleged unlawful gains) in an account pending the investigation and final report. The ensuing investigation, coupled with jurisdiction related issues, may take between 8-24 months.

However, under Indian securities laws, namely, Section 15HA of the SEBI Act 1992, if the allegations put forth by the securities watchdog come true, the firm could very well face a fine, that is, up to three times the alleged unlawful gains. However, even if SEBI’s final order upholds the interim findings and recovers the full INR 48.43 billion rupees, the challenge to equitably redistribute these funds to aggrieved retail investors that incurred losses remains a very cumbersome issue. According to recent data, on average, each retail investor lost INR 110,069 (USD 1,283; £958) last year, yet the non-existence of a robust delivery mechanism to ensure direct compensation on a fair basis raises further concerns.

Hence, this chain of events underscores the importance of ex-ante regulatory enforcement in the Indian securities market that prioritize pre-emptive surveillance coupled with early intervention in place of ex-post punitive recovery to uphold the integrity of the market.

The Regulatory Problem

There exists a cross-border disconnect that is particularly brought forth in the realm of algorithmic and high-frequency trading, by execution and order routing frequently occurring at the same time covering multiple jurisdictions. For example, although the actual trade may be conducted on Indian exchanges, the decision-making algorithms behind the trade may be executed from servers situated abroad, which are therefore, safeguarded by jurisdictional immunity and data localization restrictions. Additionally, India lacks bilateral agreements or reciprocal enforcement mechanisms similar to the SEC-ESMA MoU in the context of the US and the EU, which limits SEBI's capacity to carry out forensic audits and obtain testimony from foreign parties.

Furthermore, the current algo trading framework, including SEBI's 2022 circular on API-based execution, still lacks the granular requirements found in jurisdictions like the UK, where real-time kill-switches, latency equalization, and strategy-level tagging are necessary. The relationship between strategy ownership and trade-level impact is unclear, and disclosure is fragmented in India. Since it allows multinational proprietary trading firms to run multiple algorithmic strategies through ostensibly distinct legal entities, this raises concerns about regulatory arbitrage and opacity in beneficial ownership.

The Way Forward

The binding, on-site inspection and compelled testimony powers found in the US–EU SEC–ESMA MoU are absent from SEBI's cooperative frameworks, despite the agency's signing of IOSCO's Multilateral Memorandum of Understanding (MMoU) and the subsequent signing of the Enhanced MMoU in December 2021. Accordingly, there is a significant gap in cross-border enforcement because SEBI is unable to directly compel foreign affiliates, like Jane Street Singapore, to provide source code or show up for forensic audits.

Real-time risk controls are non-negotiable in jurisdictions with established algo trading regimes. Every algorithmic trading company is required by MiFID II's RTS 6 to have an emergency "kill functionality" that can instantly withdraw all pending orders. Latency equalization across LuxAlgo participants is essentially required by ESMA. Subsequently one must also shine light on the interpretation of US Regulation NMS (Rule 61), which expressly prohibits any deliberate delay in order processing beyond a de minimis threshold. However, unique algo IDs and basic kill switch requirements were only recently introduced by SEBI's "Safer Participation of Retail Investors in Algorithmic Trading" circular on the 4 February, 2025, without requiring latency neutral access or per strategy audit trails, measures that, if implemented, would greatly strengthen India's market integrity safeguards.

Conclusion

The Jane Street saga highlights the urgent and immediate need for SEBI to undertake a transition from a model that relies on reactive enforcement to a modernistic, proactive, and integrated oversight model. The a foretold saga highlights pressing jurisdictional gaps coupled with fragmented surveillance across affiliates of the same multinational corp. It also highlights a lack of real-time risk controls that define mature markets. While SEBI's interim order does send a strong message against hedge funds that often employ manipulative intraday strategies, it is not conclusive on the future of the same funds and of the security of retail investors in the national markets. Subsequently, regardless of recovering such purportedly illegal gains from Jane Street and at the same time pursuing cross-border litigation may discourage future abuses, the fact still remains that the Indian markets are still very well susceptible to sophisticated HFT schemes, especially in the astute absence of pre-deployment strategy tagging, mandatory kill-switches, latency normalization, and binding memoranda of understanding for forensic cooperation. Therefore, for real reform, it is necessary to combine global data-sharing frameworks, upfront certification of algorithmic models, and improved entity-group analytics. Only by implementing these ex-ante safeguards can SEBI ensure that the promise of rapid, technology-driven liquidity will not jeopardize market integrity or investor protection.