Sebi pushes for structural reforms in derivatives after Jane Street fallout: Report

The Securities and Exchange Board of India (Sebi) is pushing for sweeping structural changes to the country’s fast-expanding derivatives market, a report said, following its high-profile crackdown on U.S. trading firm Jane Street over alleged manipulation.

Sebi is examining broader reforms to rein in what it describes as unfair practices in the booming options market, according to a Financial Times report published Monday. Sebi Chair Tuhin Kanta Pandey told the publication that despite recent interventions, “the volumes have come down but not to the extent that is desirable,” adding that “(the) derivatives market needs some structural reforms.”

India’s derivatives market has surged in scale, accounting for nearly 90% of global options trading volume in 2023, per industry body FIA. A Sebi study last month showed nine in ten individual traders lose money in this segment. The number of such traders more than doubled to 9.6 million over three years to March 2024, with total annual losses swelling from $4.7 billion to $12.2 billion.

Fallout from Jane Street probe

Sebi’s investigation had revealed that Jane Street amassed staggering profits of Rs 36,502.12 crore between January 2023 and March 2025. Of this, Rs 43,289 crore came from index options, while the firm incurred losses worth Rs 7,687 crore in the cash and futures segments. Sebi ordered Rs 4,840 crore of these gains to be frozen, citing them as unlawful.

The market watchdog alleged that Jane Street engaged in a sophisticated scheme to manipulate index movements, particularly Nifty and Bank Nifty, on expiry days. According to Sebi, the firm repeatedly ran “by far the largest risks in ‘cash equivalent’ terms in F&O,” and its pattern of trading was “prima facie being manipulative” due to the “intensity and sheer scale of their intervention.”

On January 17, 2024, Jane Street reportedly earned Rs 734.93 crore in a single day by executing what Sebi described as a deliberate strategy: it aggressively bought Rs 4,370 crore worth of Bank Nifty stocks and futures in the morning to push the index up, while simultaneously holding bearish positions in options, the regulator had noted. By reversing these trades in the afternoon, the firm triggered a sharp index fall, resulting in massive profits on the options side.

Sebi Chair rejects Jane Street’s defence

Tuhin Kanta Pandey rejected Jane Street’s defence that its strategy was mischaracterised. “Manipulation is where you are artificially creating arbitrage,” he told The Financial Times. “I know these guys are brilliant mathematicians and PhDs, but we can have PhDs from our side. We are not constrained.”

Jane Street, according to the Financial Times report, said in an internal memo that it plans to challenge Sebi’s order, which it described as “extremely inflammatory.” The U.S. based firm is reportedly engaging constructively with the regulator and has sought an extension to respond to the interim order issued on July 3.

Retail boom sparks regulatory pressure

The rise in retail derivatives trading, driven by mobile apps and financial influencers, has alarmed policymakers. Pandey told FT that as the market has grown “very much,” there is broad public expectation for Sebi to “give a level playing field to everyone.”

According to the Financial Times, Sebi has introduced stricter entry norms and launched investor awareness initiatives in a bid to curb risky participation in the derivatives segment. However, the report quoted Pandey as saying, “I don’t think we are comfortable with the data yet, but we are putting out the data because we want people to see it.”

The FT report also said that Sebi expects India’s individual investor base to grow to 400 million by 2030, from around 130 million currently. While underlining the importance of derivatives to the overall market, Pandey was quoted as saying, “We’ve always said this derivative market is important for us, there’s no way we will kill the market. You develop the market, you don’t kill it.”

Also read | NSE reaches Rs 40 crore settlement with Sebi over data disclosure case

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