New Delhi, July 4 -- US trading group Jane Street worked around the regulations that govern foreign portfolio investors in India by using two local entities to undertake trades that helped it book Rs 36,502 crore ($4.3 billion) in profits over a 27-month period.

The company made these profits from January 1, 2023, to March 31, 2025 across all their trades, the Securities and Exchange Board of India (SEBI) said in an interim order banning four subsidiaries of the US-based group until further orders and impounding more than Rs 4,843 crore of gains made from what was prima facie found to be manipulative trades.

The regulator noted that the group made profits of Rs 43,289.33 crore in index and stock options but lost a net Rs 7,208 crore in stock futures, lost Rs 191 crore in index futures, and lost Rs 288 crore in trading in the cash equities segment.

"Incurring losses in [the] cash and futures market in a deliberate and systematic manner is itself unusual and indicative of fraud," it noted.

The order, written by SEBI whole-time member Ananth Narayan, explained how the group got around regulatory restrictions. It noted that two of the four entities, JSI Investments Pvt Ltd and its subsidiary JSI2 Pvt Ltd, were incorporated in India. The other two, Jane Street Singapore Pte Ltd and Jane Street Asia Trading Ltd, are FPIs.

The two Indian entities were crucial to implementing what the order called "Intra-day Index Manipulation Strategy". They allowed the group to take intraday positions, which FPIs are not allowed to do under the regulations.

The order noted that the two India-incorporated entities would undertake intraday trades that resulted in market movements and helped its FPIs make massive profits. "JS Group certainly exploited this to the hilt," Narayan noted.

How it worked

The strategy involved buying large quantities of index options as well as buying or selling large quantities of index constituents in the cash and futures market, thus moving the index in a desired direction to profit from the options they hold.

For example, on January 17, 2024, Jane Street bought BANKNIFTY constituents in the cash and future markets for Rs 4,370 crore. This pushed up the index itself, making put options cheaper and call options expensive. Then, Jane Street bought these cheap put options and built a large bearish position of Rs 32,114.96 crore in BANKNIFTY index.

Thereafter, the company dumped its cash and future positions. This pushed down the prices of the index components and thus the price of the index. This made their put positions highly profitable, which they then offloaded in the market.

"It appears that the incorporation of the JSI Investments Private Limited in India enabled the JS Group to work around the regulatory prohibition in FPI Regulations against FPIs undertaking intraday cash market transactions, and thereby execute the manipulative scheme without specifically flouting the FPI Regulations," Narayan noted.

Published by HT Digital Content Services with permission from VC Circle.