For SEBI, it's Jane Street vs Main Street

By rahmat hidayat

Tuesday, July 8, 2025

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India File

By Ira Dugal, Editor Financial News, with global Reuters staff

The Indian market regulator temporarily banned Wall Street trading firm Jane Street from India's equity markets, accusing it of manipulative practices that took advantage of large positions in the cash and derivatives markets.

Jane Street denies it engaged in manipulation, but the regulator's unprecedented order reveals its growing unease over a rapid influx of small local investors into the riskiest corners of the stock market, where they can end up losing money to sophisticated global players.

Will the order succeed in cooling the frenzy in the options market, where small investors have become vulnerable? That's our focus this week.

And, India escapes an initial set of tariff letters sent out by U.S. President Donald Trump. Scroll down for more on that.

This week in Asia

Jane Street vs India's retail investors

A man walks past a screen displaying market results at the Bombay Stock Exchange (BSE) in Mumbai, India, April 7, 2025. REUTERS/Francis Mascarenhas

When the Securities and Exchange Board of India (SEBI) barred Jane Street from Indian markets, its message was clear: It will do what it must to protect India's millions of small investors from falling prey to Wall Street high flyers.

Jane Street has disputed SEBI's interim findings and said in an internal letter that it plans to contest them, leaving the courts to decide whether its manoeuvres were manipulation or just the aggressive trading practices of a sophisticated global player.

For SEBI, the latest gambit is more than just a warning to proprietary trading firms not to disrupt India's still-nascent markets. It is also a recognition it must do more if it wants to rein in speculative activity that could burn India's retail investors.

The regulator has tried repeatedly in recent years to bring down volumes in India's overheated equity derivatives markets - now the world's largest by number of contracts - with tighter rules that curtail retail traders' opportunities. It will need to balance that, however, with India's goal of opening its markets to global capital.

For nearly two years now, SEBI has cautioned that more than 90% of small investors dabbling in equity options are making losses. Gaining at their expense are high-frequency trading firms like Jane Street.

SEBI Chairman Tuhin Kanta Pandey reiterated those concerns over the weekend.

"It cannot be that only the very large organised players must always be making money and the retailers must always be losing money," he said at an industry event, as reported by Business Today.

The regulator will increase surveillance to curb manipulation in derivatives trading, he said at a separate event on Monday.

SEBI has reason to be concerned. The explosion of retail activity in equity derivatives is driven in large part by young Indians, many of whom are hoping to supplement their earnings while jobs and income growth remain stagnant.

India had 197 million stock trading accounts as of May 2025, five times the number at the start of 2020, and many of those account holders are venturing into relatively risky futures and options.

About 90% of retail accounts actively trading equity futures and options lost money on their derivatives trades, while more than 40% of those traders were under 30 years old and nearly three-fourths had an annual income below 500,000 rupees ($5,850), according to the latest SEBI data.

Recently released data for individual investors showed their losses at 1.05 trillion rupees in the 12 months to March 2025, up 41% from the previous year. Data for the year to March 2024 showed both proprietary traders and foreign investors earning hundreds of billions of rupees in gross profit.

Retail investors caught in the middle

Jane Street, the regulators said, was found buying large quantities of constituent shares in the Bank Nifty sub-index in the cash and futures markets early in the trading day, boosting prices, while simultaneously building large short positions in index options by buying puts and selling calls. Later in the day, they said, it reversed the cash and futures trades to profit from the options positions.

Retail investors were caught in the middle on those trades.

"Multiple liquid stocks with high retail participation have together been manipulated to facilitate the manipulation of the index options market, resulting in massive profits for the manipulators, at the cost of other participants and retail traders," SEBI said in its interim order, which required Jane Street to deposit $567 million of its "unlawful gains" in an escrow account.

Jane Street in its internal letter said its actions were "basic index arbitrage trading".

SEBI is also investigating similar Jane Street strategies involving other stock indexes, Reuters journalist Jayshree P. Upadhyay reported.

The regulator's tough action could succeed in cooling the options market where previous efforts fell short.

One key will be whether it prompts other proprietary traders to pull back as well, said Nithin Kamath, founder and chief executive of Zerodha, one of the country's largest online trading platforms.

Proprietary trading firms like Jane Street account for nearly 50% of trading volumes in Indian equity options, he wrote on his account on social media platform X.

"If they pull back — which seems likely — retail activity (about 35%) could take a hit too. So this could be bad news for both exchanges and brokers," Kamath said.

Accordingly, shares of listed brokerages and stock exchange BSE fell last week.

Brokerage Jefferies, however, suggested that if other, less-dominant proprietary traders move in to take Jane Street's place, option turnover may hold up while "manipulative factors" in the market are reduced.

An early clue, it said in a note on Monday, could come from trading volume ahead of this week's options expiries.

Will SEBI's order against Jane Street cool the options trading market in India? Write to me at ira.dugal@thomsonreuters.com

Market matters

Indian investors are closely watching the outcome of trade negotiations between the U.S. and India, with the currency fluctuating on conflicting reports.

India escaped the first round of "tariff letters" sent to U.S. trading partners by President Donald Trump, raising the odds of a trade deal between the two nations.

Trump imposed higher tariffs on 14 countries. Among those, Japan and South Korea have been hit with a 25% tariff and Bangladesh with 35%.

India and the U.S. have been in the final stages of negotiating a deal but disagreements remain over agriculture and dairy trade.

The week's must-read

India's aviation watchdog reprimanded Air India's budget carrier in March for not changing engine parts of an Airbus A320 as directed by the European Union's aviation safety agency, and for falsifying records to show compliance, Reuters journalists Aditya Kalra and Aditi Shah reported.

Air India has been under intense scrutiny since a June crash in Ahmedabad that killed all but one of the 242 people onboard. The world's worst aviation disaster in a decade is still under investigation.

Read that exclusive report here.

In pictures

India's Prime Minister Narendra Modi and Brazil's President Luiz Inacio Lula da Silva attend the BRICS Summit in Rio de Janeiro, Brazil, July 6, 2025. REUTERS/Ricardo Moraes

Prime Minister Narendra Modi joined leaders from other BRICS nations for a summit this past week in Rio De Janeiro, where they issued a joint statement warning that a rise in tariffs could threaten global trade.

The statement drew a quick response from U.S. President Donald Trump, who threatened an additional 10% in tariffs on any countries aligning themselves with the BRICS nations' "anti-American" policies.

Read more

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This newsletter was edited by Edmund Klamann, Deputy Head, Asia Desk in Singapore.

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