July 8, 2025 – A seismic shift is unfolding in India’s financial markets as hedge funds, once seen as collaborative players in the high-stakes world of derivatives trading, are now turning on each other, exposing alleged manipulative practices to regulators.
The Securities and Exchange Board of India (SEBI) has taken decisive action against U.S.-based proprietary trading firm Jane Street, banning it from Indian securities markets and seizing ₹4,844 crore in alleged unlawful gains.
The catalyst?
A whistleblower from a rival hedge fund, Mayank Bansal, president of a UAE-based firm, who claims he alerted SEBI to Jane Street’s manipulative trading strategies.
This escalating saga, rooted in a U.S. legal dispute, has revealed a cutthroat environment where hedge funds are increasingly throwing each other under the bus to gain a competitive edge.
The controversy began with a tip from Mayank Bansal, who flagged suspicious trading patterns in India’s derivatives market, particularly in the Bank Nifty index.
Bansal alleged that Jane Street executed calculated trades to manipulate expiry-day pricing, violating India’s Unfair Trade Practices Act.
According to Bansal, Jane Street’s strategy involved bulk purchases of banking stocks like HDFC and ICICI to inflate index levels, triggering retail investors to buy call options.
The firm would then reverse its positions—selling calls, buying puts, and dumping stocks—causing the index to crash and retail positions to lose value.
“This was not market movement—it was calculated manipulation,” Bansal told BusinessToday.
He claims to have provided SEBI with a detailed report in December 2024, which prompted a meeting with SEBI’s Whole-time Member Ananth Narayan in January 2025 at SEBI Bhawan in Mumbai.
Bansal’s accusations were not made in isolation.
The broader context involves a U.S.-based legal dispute between Jane Street and rival firm Millennium Management.
Jane Street had accused two of its former traders, Douglas Schadewald and Daniel Spottiswood, of stealing proprietary trading strategies before joining Millennium.
The lawsuit, settled quietly in December 2024, reportedly sparked Bansal’s scrutiny of Jane Street’s India operations.
The fallout from this feud has now reverberated across borders, with SEBI’s investigation uncovering profits of ₹36,671 crore by Jane Street between January 2023 and March 2025, primarily through Bank Nifty options trading.
SEBI’s Response and Market Impact
SEBI’s probe, initiated in April 2024, revealed two key manipulative strategies employed by Jane Street: the “Intraday Index Manipulation Strategy” and the “Extended Marking the Close Strategy.”
These involved large purchases of Bank Nifty constituent stocks in cash and futures markets to artificially prop up the index, followed by short positions in options to profit from subsequent declines.
On July 3, 2025, SEBI issued an interim order barring Jane Street from trading in Indian markets and freezing ₹4,844 crore in assets.
The regulator’s actions have sent shockwaves through India’s derivatives market, with Bank Nifty futures and options volumes dropping sharply and BSE shares tumbling 13% since the crackdown.
Former SEBI Chairperson Madhabi Puri Buch has defended the regulator’s proactive stance, refuting claims of negligence.
Buch stated that SEBI began investigating Jane Street in April 2024, issuing policy circulars and a cease-and-desist letter via the National Stock Exchange (NSE) in February 2025.
“The chronology clearly shows SEBI’s engagement,” Buch said in a press statement, dismissing allegations of regulatory failure as a “false narrative.”
However, political critics, including Congress leader Rahul Gandhi, have accused SEBI of delayed action, arguing that retail investors, 91% of whom lost money in futures and options (F&O) trading in FY25 with average losses of ₹1 lakh per person, have been exploited due to regulatory lapses.
Related: Robinhood Now Becomes Center of Allegations in Illegal Short Selling
Hedge Funds Turn on Each Other
The Jane Street case highlights a growing trend of hedge funds exposing rivals to regulators, driven by competitive pressures and personal vendettas.
Alexander Gerko, founder of London-based XTX Markets, reportedly faced significant losses attempting to compete with Jane Street’s strategies, which Bansal described as “market choreography” involving “quiet expiries” to crush option volatility and “volatile expiries” to inflate prices before triggering sharp moves.
Gerko’s struggles, coupled with Bansal’s whistleblowing, underscore a fractious environment where hedge funds are no longer just competing for profits but actively seeking to undermine each other through regulatory channels.
SEBI’s response signals a broader crackdown on derivatives trading.
Chairman Tuhin Kanta Pandey announced on July 7, 2025, that the regulator is enhancing surveillance to detect manipulation, though he downplayed the likelihood of widespread similar cases.
SEBI’s white paper revealed the devastating impact on retail traders, with F&O volumes dropping 26% on the NSE, raising concerns about liquidity and market structure.
Some market participants are now calling for criminal prosecution under the SEBI Act, which allows for fines and up to 10 years’ imprisonment for market manipulation.
Jane Street has vehemently denied SEBI’s allegations, calling the July 3 order “fundamentally mistaken” and “extremely inflammatory.”
In an internal memo to its 3,000 employees, the firm claimed its trading practices were standard index arbitrage and accused SEBI of misunderstanding hedging strategies.
Jane Street also stated that its attempts to engage with the regulator since February 2025 were “consistently rebuffed.”
The firm is preparing a formal response and exploring legal options to challenge the ban, with 21 days to place the impounded ₹4,844 crore into an escrow account pending further investigation.
As SEBI expands its probe to other indices like the Nifty 50 and Sensex, the fallout from this saga is reshaping India’s derivatives market.
Proposed measures, such as linking options leverage to cash positions, aim to curb speculation and protect retail investors, but they could further dampen market liquidity.
For now, the Jane Street case serves as a stark reminder of the high stakes and fierce rivalries in global finance, where hedge funds are increasingly willing to expose each other’s tactics to secure their own survival.
But I’m curious to know what you think — leave your thoughts below.
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