SEBI vs Jane Street: What Startups and Investors Should Learn from India’s Biggest Market Crackdown

India’s financial markets have been buzzing with one name over the past few weeks: Jane Street. For most people in the startup or investment world, it may have sounded like just another global trading firm. But what has happened recently is anything but normal.

India's markets regulator, SEBI, acted decisively by banning Jane Street from Indian markets and freezing almost ₹4,843 crore of the firm's assets. The accusation? Constant and deliberate market manipulation using sophisticated trading software.

What did Jane Street do?

US-based large algorithmic trader Jane Street made approximately ₹43,000 crore from Indian markets between January 2023 and March 2025. SEBI charges that much of this profit came from tactics that were not only aggressive but also manipulative.

Here's how the alleged strategy played out.

Jane Street focused on BANK NIFTY, one of the most traded indices in India. It began by buying large volumes of banking stocks like HDFC Bank, SBI, and ICICI Bank in both the cash and futures markets. As these prices climbed, the BANK NIFTY index naturally went up.

This sudden upward move attracted retail traders who started buying call options, expecting the rally to continue. At the same time, Jane Street took the opposite bet. While retail investors were busy buying calls, the firm quietly sold those calls and bought put options, expecting the index to fall.

Then came the twist. Jane Street dumped the bank stocks it had previously bought. The heavy selling pushed the index down sharply. Their put options gained value, and the calls bought by retail traders became worthless.

This pattern was not a one-time occurrence. SEBI found it happening repeatedly, especially on expiry days. There were two key tactics at play: buying aggressively early in the day to lift prices and selling just before market close to influence the final settlement price.

Interestingly, this didn’t come to SEBI’s attention through regular surveillance. It was a lawsuit filed by Jane Street in the US that triggered curiosity. The firm accused a rival hedge fund, Millennium Management, of stealing a profitable algorithm built by former employees. That legal case hinted at a billion-dollar strategy used outside the US, which eventually led SEBI to investigate trading activity in India.

What This Means for Startups and Investors

This case is not merely a story of a global trading company bending the rules. It poses a number of questions to those creating or investing in the financial services sector in India.

1. Stronger Regulations Are Here to Stay

SEBI is moving decisively in the direction of closer regulation of algorithmic and high-frequency trading. For startups developing brokerage platforms, algo-trading solutions, or analytics engines, this is a reminder to focus early on compliance and risk management.

2. Transparency Is a Competitive Advantage

Products that involve retail consumers, particularly in the derivatives category, need to prioritize education and transparent disclosures. In the haste to grow, fintech startups cannot ignore the duty they owe to shield users from sophisticated and risky products.

3. Not All Smart Money Is Safe

Investors tend to pursue quick-growing fin techs and quant-based companies. But the Jane Street tale illustrates that clever strategies can easily slide into regulatory grey areas. Ethics, governance, and intent matter just as much as growth metrics.

What Comes Next for the Market?

In the short term, the ban may lead to reduced liquidity in BANK NIFTY options, which are among the most actively traded instruments in India. Retail traders, already reeling from losses, may take a step back. Meanwhile, other global firms will likely re-evaluate their India strategies.

In the long run, this could help build a more level playing field. With tighter oversight, local startups that prioritise fairness and trust could find more room to grow. Market participants will also compel better surveillance tools and more intelligent regulation.

Conclusion:

The Jane Street case is not simply another enforcement tale. It is a turning point in the manner in which India is gearing up to regulate its rapidly expanding and growingly sophisticated financial markets.

For entrepreneurs, it is a reminder that technology and money need to go together with ethics. For investors, it is a reminder to look beyond the numbers and analyze the business model for integrity. And for traders, it is a reminder that the game is not always even, particularly when billion-dollar computers are at play.

At its core, this epic reminds us of one thing: trust is the greatest currency on financial markets. Losing it as a business or a nation is much more costly than any fleeting profit.