Introduction

In June 2025, the Securities and Exchange Board of India (SEBI) launched a major enforcement action against Jane Street Group, a US-based high-frequency trading firm, for alleged market manipulation in India’s equity and derivatives markets.
This case reflects the growing challenge of regulating AI-driven, algorithmic trading strategies, particularly as India emerges as a global leader in derivatives trading.

The SEBI Action: What Happened?

About Jane Street

• A global proprietary trading firm using quantitative strategies, AI, and high-frequency trading (HFT).
• Trades across global markets, including equities, ETFs, and derivatives.

SEBI’s Allegations

• Intraday index manipulation: Inflating indices by buying stocks/futures in the morning and reversing positions later to profit.
• Coordinated trading across equities, futures, and options to distort market signals.
• Ignored warnings from NSE before the manipulation allegedly continued.

Regulatory Action

• SEBI impounded illegal profits worth ₹4,843 crore.
• Barred Jane Street and associated entities from Indian markets.
• Cited prima facie manipulation over 21 trading days.

Legal & Regulatory Framework

Key Violations

• Breach of SEBI’s Prohibition of Fraudulent and Unfair Trade Practices Regulations (2003).
• Disruption of fair price discovery, violating principles of market integrity.
• Potential non-compliance with algorithmic trading norms (pre-approval, logging, transparency).

Concerns Around AI & HFT

• Jane Street’s opaque AI-driven strategies made detection difficult.
• Existing surveillance struggled to keep pace with speed and complexity of modern trading algorithms.
• Delayed enforcement shows gaps in real-time monitoring.

Why It Matters: The Indian Context

Boom in Derivatives Trading

• India is now the world’s largest equity derivatives market (NSE, 2024).
• Over 90% of trades on NSE are derivatives.
• However, SEBI’s own 2023 study showed 93% of retail options traders incurred losses.

Retail Investor Risk

• India has over 12 crore demat accounts, many operated by retail investors.
• Lack of technical awareness makes them vulnerable to sophisticated manipulation.
• Such manipulations distort prices and erode investor trust.

Historical Parallels

• Harshad Mehta (1992) and Ketan Parekh (2001) scams showed how unchecked manipulation can destabilize markets.

Broader Implications

For Regulation

• SEBI must shift from reactive to proactive, tech-enabled enforcement.
• AI, machine learning, and real-time data analytics must be core to surveillance.
• Enhanced scrutiny of algorithmic and proprietary trading is needed.

For Global Collaboration

• Cross-border trades demand cooperation with regulators like US SEC, FINRA, and EU watchdogs.
• Need for harmonized enforcement, information sharing, and prevention of regulatory arbitrage.

Ethical, Economic, and Legal Dimensions

Ethical

• Algorithmic manipulation violates fairness and undermines trust in markets.

Economic

• Short-term gains for a few can cause long-term instability and loss of investor confidence.

Legal

• Reinforces the need for SEBI Act, 1992 to evolve with the market.
• Regulatory frameworks must address AI-enabled strategies and real-time manipulations.

Way Forward

1.     Modernize Surveillance Infrastructure: Use AI-based anomaly detection, blockchain, and cloud analytics. Build a real-time trade surveillance system with early-warning triggers.

2.     Protect Retail Investors: Mandate risk disclosures, educational modules, and warnings before trading in complex instruments.

3.     Regulate Trading Algorithms: Require third-party audit and certification of trading algorithms. Introduce kill-switch protocols to stop manipulation mid-trade.

4.     Adopt Global Best Practices: Learn from:

• MiFID II (EU): Real-time tracking, algorithm registration.
• UK FCA & US SEC: Tight HFT oversight and enforcement.

Conclusion

The Jane Street episode is a turning point for Indian financial regulation. As India cements its role in global finance, SEBI must evolve into a tech-savvy, future-ready regulator.
This means not just responding to manipulation, but pre-emptively preventing it—through smarter tools, stronger coordination, and a firm commitment to market integrity.