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In July 2025, global financial markets were shaken by a major news event. The top quantitative trading giant Jane Street, known for its mystery and elite status, was fined a record 484.3 billion rupees (approximately $58 million) by the Securities and Exchange Board of India (SEBI) for systematic index manipulation in the Indian market, and was temporarily banned from market access. The core document of this event is a lengthy 105-page SEBI interim investigation report, revealing how cutting-edge 'players' exploit the asymmetry of market structure to reap profits.
This is not only a case of a sky-high fine but also a profound warning to all trading institutions that rely on complex algorithms and technological advantages—especially virtual asset institutions operating in the regulatory 'grey area.' When extreme quantitative strategies fundamentally conflict with market fairness and regulatory intentions, technological advantages will no longer serve as a 'talisman,' but may instead become evidence pointing back to them.
Aiying's research team spent a week deeply analyzing SEBI's investigation report, from case reviews, regulatory logic, market impacts, technical reflections, to the mapping of connections with the Crypto field and future prospects, interpreting the compliance 'Damocles' sword hanging over all virtual asset market participants, and discussing how to navigate steadily on the tightrope of technological innovation and market fairness.
Part One: A review of the 'Perfect Storm' - How did Jane Street weave the web of manipulation?
To understand the far-reaching impact of this case, one must first clearly restore the manipulation techniques that Jane Street is accused of. This is not an isolated technical error or accidental strategy deviation, but a carefully designed, systematically executed, large-scale, and highly concealed 'conspiracy.' SEBI's report reveals its two core strategies in detail.
1. Core strategy analysis: The operational mechanisms of two major 'conspiracies'
According to SEBI's investigation, Jane Street mainly employed two interrelated strategies, repeatedly executed on multiple BANKNIFTY and NIFTY index options expiration days, with the core being to profit from the liquidity differences and price transmission mechanisms between different markets.
Strategy One: 'Intra-day Index Manipulation'
This strategy is divided into two clear phases, like a carefully staged drama, aimed at creating a false market appearance and ultimately harvesting profits.
Phase One (morning/Patch I): Creating false prosperity to lure the enemy.
Behavior: Through its locally registered entity (JSI Investments Private Limited) in India, investing billions of rupees in the relatively low liquidity spot (Cash) and stock index component futures (Stock Futures) markets, aggressively buying key component stocks of the BANKNIFTY index, such as HDFC Bank, ICICI Bank, etc.
Technique: Its trading behavior is extremely aggressive. Reports show that Jane Street's buy orders are usually above the latest market transaction price (LTP), actively 'driving up' or strongly 'supporting' the prices of component stocks, thereby directly increasing the BANKNIFTY index. During certain periods, its trading volume even accounted for 15% to 25% of the total trading volume of individual stocks, forming the power necessary to guide prices.
Purpose: The sole purpose of this action is to create the illusion that the index is strongly rebounding or stabilizing. This would directly affect the highly liquid options market, causing the prices of call options to be artificially pushed up, while the prices of put options are correspondingly driven down.
Coordinated action: While creating 'noise' in the spot market, Jane Street's overseas FPI entity (such as Jane Street Singapore Pte. Ltd.) quietly acted in the options market. They used the distorted options prices to buy a large number of put options at a very low cost and sell call options at inflated prices, thereby building a massive short position. SEBI's report pointed out that the nominal value (cash-equivalent) of its options positions was several times the funds it invested in the spot/futures market; for instance, on January 17, this leverage ratio reached as high as 7.3 times.
Phase Two (afternoon/Patch II): Reverse harvesting to achieve profits.
Behavior: During the afternoon trading session, especially near closing time, Jane Street's local entity would make a 180-degree turn, systematically and aggressively selling all positions bought in the morning, sometimes even doubling down on selling.
Technique: In contrast to the morning, its sell orders are usually below the market LTP, actively 'suppressing' component stock prices, causing the BANKNIFTY index to plummet rapidly.
Profit loop: The sharp decline of the index causes the massive put options (Put) established in the morning to skyrocket in value, while the call options (Call) drop to zero. Ultimately, the enormous profits gained in the options market far exceed the certain losses incurred in the spot/futures market due to 'buying high and selling low.' This pattern constitutes a perfect profit loop.
Strategy Two: 'Closing Price Manipulation' (Extended Marking The Close)
This is another, more direct manipulation technique, primarily focusing on the final stages of the trading day, especially during the settlement window of options contracts.
'Extended marking the close' refers to a manipulative trading behavior where entities, at the last moments of the trading session, through large buy or sell orders, intend to influence the closing price of securities or indices, thereby profiting from their held derivative positions.
On certain trading days, Jane Street did not adopt an all-day 'buy-sell' model, but after 2:30 PM, when it held a large number of soon-to-expire options positions, suddenly engaged in large-scale one-way trades (buying or selling) in the spot and futures markets to push the final settlement price of the index in a favorable direction.
Key evidence and data support
SEBI's accusations are not unfounded but are based on massive trading data and rigorous quantitative analysis.
Scale and concentration
The report uses detailed tables (such as Table 7, 8, 16, 17) to show Jane Street's astonishing trading volume share within specific time windows. For example, on the morning of January 17, 2024, its buying transaction volume in the ICICIBANK spot market accounted for 23.33% of the total buying transaction volume in the entire market. This market dominance is a prerequisite for its ability to influence prices.
Price influence analysis (LTP Impact Analysis)
This is a major highlight in the SEBI report. The regulatory body not only analyzed trading volumes but also judged the 'intention' of its trades through LTP impact analysis. The analysis showed that during the pushing phase, Jane Street's trades had a massive positive price impact on the index; while in the suppressing phase, they had a significant negative impact. This strongly refutes any potential defense of 'normal trading' or 'providing liquidity' that it might put forth, proving that its behavior had a clear purpose of 'driving up' or 'suppressing' the market.
Cross-entity collaboration and evasion of regulation
SEBI clearly pointed out that Jane Street cleverly circumvented the restriction that a single Foreign Portfolio Investor (FPI) cannot conduct intraday trading by using a combination of its local entity (JSI Investments) and overseas FPI entities. The local entity was responsible for conducting high-frequency intraday reversal trades (buying and then selling) in the spot market, while the FPI entity held and benefited from substantial options positions. This 'left hand hitting the right hand' coordinated manipulation model shows the premeditation and systematic nature of its behavior.
Data source: SEBI Interim Investigation Report (Table 4). The chart clearly shows that Jane Street made huge profits in the options market, while incurring significant losses in other markets (especially stock futures), confirming the manipulation logic of 'trading losses for greater profits' in its strategy.
Part Two: The 'Sky Net' of regulation - SEBI's punishment logic and core warnings
Faced with such complex and technologically advanced trading strategies from Jane Street, SEBI's penalty decision did not fall into endless exploration of its algorithm 'black box' but hit the nail on the head, addressing the essence of its behavior and its destructive impact on market fairness. The regulatory logic reflected behind this poses a strong warning to all technology-driven trading institutions, especially participants in the virtual asset field.
Sign outside the headquarters building of the Securities and Exchange Board of India (SEBI)
1. SEBI's punishment logic: Qualitative based on 'behavior' rather than 'results.'
The core legal weapon of SEBI is its (Prohibition of Fraudulent and Unfair Trade Practices Regulations) (PFUTP Regulations). Its punishment logic is not based on 'Jane Street made money,' but on 'the way Jane Street made money is wrong.'
Key qualitative basis is as follows:
1. Creating false or misleading market appearances (Regulation 4(2)(a)): SEBI believes that Jane Street artificially created the ups and downs of the index through its large-scale, high-intensity buying and selling, transmitting false price signals to the market, misleading the judgment of other participants (especially retail investors who rely on price signals for decision-making). This behavior itself constitutes a distortion of the true supply and demand relationship in the market.
2. Manipulating security prices and benchmark prices (Regulation 4(2)(e)): The report explicitly states that Jane Street's behavior directly aimed to influence the BANKNIFTY index—an important market benchmark price. All its operations in the spot and futures markets were intended to move this benchmark price in a direction favorable to its derivative positions.
3. Lack of independent economic rationale: This is the 'winning hand' in SEBI's argument. The regulatory body pointed out that Jane Street's intraday high buy-low sell reversal trades in the spot/futures market must inevitably lead to losses from a single business perspective. Report data shows that on 15 trading days of 'intra-day index manipulation,' it incurred cumulative losses of 1.997 billion rupees in the spot/futures market. This 'intentional loss' behavior precisely proves that these trades were not for investment or normal arbitrage but served as a 'cost' or 'tool' for achieving greater profits in the options market.
2. Core warning: Technically neutral, but those using technology have a stance.
The most profound warning from this case is that it clearly draws a red line:
In today's increasingly refined and principle-based regulation, pure technological and mathematical advantages, if lacking respect for market fairness and regulatory intentions, may touch the legal red line at any time.
The boundary of technological advantage: Jane Street undoubtedly possesses world-class algorithms, low-latency execution systems, and excellent risk management capabilities. However, when this capability is used to systematically create information asymmetry and disrupt the market price discovery function, it transforms from a 'tool for efficiency' into a 'weapon for manipulation.' Technology itself is neutral, but its application methods and intentions determine the legality of its behavior.
A 'principle-based' regulatory new paradigm: Global regulatory bodies, including SEBI, SEC, etc., are increasingly evolving from 'rule-based' to 'principle-based' regulatory concepts. This means that even if a complex trading strategy does not explicitly violate a specific provision, as long as its overall design and final effect contradict the fundamental principles of 'fairness, justice, and transparency' in the market, it may be deemed manipulation. Regulators will ask a fundamental question: 'What benefit does your behavior bring to the market, besides harming others' interests to profit yourself?' If the answer is negative, then the risk is very high.
3. The 'arrogance' of ignoring warnings: A catalyst for heavy penalties
SEBI specifically emphasized an aggravating circumstance in the report: In February 2025, the National Stock Exchange of India (NSE) had issued a clear warning letter to Jane Street, based on SEBI's instructions, requesting it to cease suspicious trading patterns. However, the investigation found that Jane Street continued to employ similar 'closing price manipulation' techniques to manipulate the NIFTY index in the following May.
This behavior is seen by SEBI as a blatant contempt for regulatory authority and 'bad faith.' This is not only one of the reasons for imposing a hefty fine but also a significant catalyst for SEBI's severe temporary measure of 'banning market access.' It teaches all market participants that communication and commitments with regulatory bodies must be taken seriously; any form of luck mentality and arrogance may lead to harsher consequences.
Part Three: Under the avalanche, no snowflake is innocent - Analysis of market impact and the breadth of victims
Aiying's analysis of the Jane Street case goes far beyond just a company's fines and damage to reputation. It is like a boulder thrown into a calm lake, sending ripples across the entire quantitative trading ecosystem and redefining our understanding of 'victims.' The breadth and depth of its impact deserve deep reflection from all market participants.
1. Direct impact on market ecology
Liquidity paradox and decline in market quality
In the short term, the prohibition of top market makers like Jane Street will undoubtedly impact the liquidity of their active derivatives markets (such as BANKNIFTY options). The bid-ask spread may widen, resulting in increased trading costs. As noted by Nithin Kamath, CEO of the well-known Indian brokerage Zerodha, leading proprietary trading firms contribute nearly 50% of options trading volume, and their withdrawal may significantly affect market depth.
Crisis of trust and the chilling effect on the industry
This case severely undermined market trust in quantitative trading, especially high-frequency trading (HFT). The negative perception from the public and regulators intensified, potentially leading to a 'stigma' against the entire industry. Other quantitative funds, especially foreign institutions, may become more cautious because of this case, reassessing regulatory risks in emerging markets like India, or voluntarily shrinking their business scale, creating a 'chilling effect.'
Prelude to comprehensive regulatory tightening
SEBI's chairman has clearly stated that monitoring of the derivatives market will be strengthened. This indicates that all quantitative institutions will face stricter algorithm reviews, more transparent position reporting requirements, and more frequent compliance checks in the future. A more stringent regulatory era has arrived.
2. Spectrum analysis of victims: From retail to institutional chain reactions
Traditional analysis often focuses on victims who are directly 'harvested' retail investors. However, in an interconnected market, the harm of manipulation is systemic.
Direct victims: Retail investors who were 'harvested'
This is the most obvious victim group. The SEBI report repeatedly mentions that as many as 93% of retail investors in India lose money in F&O (futures and options) trading. Jane Street's strategy exploits the retail group’s reliance on price signals and their inadequate information processing ability. When the index is artificially inflated, retail investors are lured into a long trap; when the index is artificially depressed, their stop-loss orders exacerbate the market's decline. They become the direct 'counterparty' to Jane Street's massive profits, with almost no ability to fight back under the dual disadvantages of information and capital.
Indirect victims: Other quantitative institutions misled by 'polluted' signals
This is a crucial but often overlooked victim group. The market game does not only involve Jane Street and retail investors. Hundreds of other small to medium-sized quantitative institutions also rely on publicly available market data—prices, trading volumes, order book depths, etc.—to make decisions. Their survival depends on finding small arbitrage opportunities in a fair and efficient market through better models or faster execution.
However, when 'whales' like Jane Street systematically 'pollute' the price signals that underpin the market, the rules of the entire game change. Other quantitative institutions receive distorted data, a market condition that has been artificially 'directed.'
This can lead to a series of chain reactions:
Strategy failure
Models based on trend following, mean reversion, or statistical arbitrage may completely fail in the face of such artificially created drastic reversal markets, leading to erroneous trades and losses.
Risk model misjudgment
Risk management models (such as VaR) are based on historical volatility calculations. When market volatility is artificially amplified, these models may underestimate true risk or trigger risk control commands at the wrong time.
Missing real opportunities
When the primary driving force of the market comes from manipulation rather than fundamentals or genuine sentiment, strategies aimed at discovering real value will have no ground to stand on.
Therefore, Jane Street's actions not only harvested retail investors but also dealt a 'dimensional blow' to other professional institutions in the same field. They thought they were competing against the 'market,' but in reality, they were competing against a 'falsified market' with a god’s-eye view. This dismantles the simplistic understanding of 'quantitative internal competition, the strong become stronger' and reveals how fragile the market's price discovery function is in the face of absolute power. From this perspective, all participants relying on fair signals, regardless of their technical level, become potential victims of this manipulation drama.
Part Four: A mirror in the Crypto field - Cross-market mapping of Jane Street's strategy
For virtual asset institutions, the Jane Street case is far from an isolated incident. Its core manipulation logic is highly homologous to the common 'technological original sin' in the Crypto market. Using this case as a mirror, one can clearly see the substantial compliance risks lurking in the Crypto field.
1. Jane Street's layout and behavior in the Crypto space
Jane Street is one of the earliest and most significant institutional players in the crypto world. Its behavioral patterns are inherited from traditional financial markets: low-key, mysterious, but highly influential.
According to Aiying, Jane Street is not only a major cryptocurrency market maker globally but also a significant liquidity provider for leading exchanges such as FTX and Binance. Recently, it has become an authorized participant (AP) for multiple Bitcoin spot ETFs from firms like BlackRock and Fidelity, playing a key role as a bridge connecting traditional finance and crypto assets. Notably, after the tightening of the U.S. regulatory environment in 2023, Jane Street scaled back its cryptocurrency trading business in the U.S. but remains active in other regions globally. This indicates its high sensitivity to regulatory risks and its ability to flexibly adjust strategies worldwide. It can be concluded that Jane Street's well-honed quantitative models, technological architecture, and risk management philosophy from traditional financial markets are also applied to its trading in crypto assets. Therefore, its manipulation techniques in the Indian market have high reference value for understanding its potential behavior patterns in the Crypto world.
Compared to traditional financial markets, the manipulation techniques in the crypto asset market demonstrate characteristics closely tied to technical protocols, market structures, and community ecosystems. The following cases cover multiple dimensions from DeFi to CEX, from algorithms to social media, revealing the diversity and complexity of their manipulative behaviors.
Case One: Mango Markets oracle manipulation case (DeFi)
Manipulation technique: In October 2022, manipulator Avraham Eisenberg exploited structural vulnerabilities in the Mango Markets protocol, significantly increasing the value of his collateral by raising the price of his governance token MNGO across multiple platforms. He then borrowed and drained approximately $110 million worth of various mainstream crypto assets from the protocol's treasury based on this highly inflated collateral.
Market impact and legal consequences: This incident caused the Mango Markets protocol to declare bankruptcy instantly, and user assets were frozen. Eisenberg later claimed that his actions were a 'legitimate trading strategy with high profits,' challenging the boundaries of 'code is law.' However, the U.S. Department of Justice ultimately arrested and convicted him on charges of commodities fraud and market manipulation. This case marks the first successful prosecution of DeFi market manipulation, establishing the applicability of traditional market manipulation regulations in the DeFi space.
Case Two: FTX / Alameda Research internal affiliated party manipulation case (CEX)
Manipulation techniques: There was systematic transfer of benefits and market manipulation between FTX and its affiliated trading company Alameda Research. Alameda used its special privileges on FTX (such as exemption from automatic liquidation) to misappropriate customer deposits for high-risk investments. Meanwhile, both parties manipulated the price of the FTX platform token FTT, using it as false collateral to conceal Alameda's massive losses.
Market impact and legal consequences: This manipulation ultimately led to the collapse of the FTX empire, triggering an industry-wide liquidity crisis, with investor losses reaching billions of dollars. Founder Sam Bankman-Fried was convicted of multiple charges, including securities fraud and wire fraud. This case revealed the extreme systemic risks that centralized platforms might face in the absence of external regulation and internal risk control.
Case Three: BitMEX derivatives market manipulation case (Derivatives)
Manipulation techniques: The U.S. Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN) accused BitMEX of long-term illegal operations and failure to implement necessary anti-money laundering (AML) and know your customer (KYC) procedures. This created conditions for market manipulators (including their internal employees) to influence derivatives prices through means such as 'spoofing' and 'wash trading.' Its unique 'clearing engine' has also been criticized for exacerbating user losses during severe volatility.
Market impact and legal consequences: BitMEX's actions undermined the fairness of the derivatives market and harmed the interests of traders. Ultimately, BitMEX reached a settlement with regulators, paying a hefty fine of $100 million, and several of its founders admitted to violating the Bank Secrecy Act. This case marks the beginning of tightened regulation of cryptocurrency derivatives platforms by regulators.
Case Four: Hydrogen Technology algorithmic manipulation case (Algorithmic)
Manipulation techniques: The U.S. Securities and Exchange Commission (SEC) accused Hydrogen Technology Company and its market makers of conducting large-scale 'wash trading' and 'spoofing' operations on their token HYDRO through specially designed trading bots between 2018 and 2019. These algorithmic trades created over $300 million in false trading volume, accounting for the vast majority of the token's global trading volume, aimed at creating a false illusion of market activity to attract investors.
Market impact and legal consequences: This manipulation misled the market, artificially raised the token price, leading to ordinary investors suffering losses after the price collapse. The SEC ultimately ruled that it violated federal securities law's anti-fraud and market manipulation provisions. This case is a typical example of regulators successfully identifying and combating algorithm-driven manipulation using data analysis techniques.
Case Five: Social media influence manipulation case (Social Media)
Manipulation technique: This type of manipulation does not rely on complex technology but utilizes the influence of social media (such as X, Telegram, Discord). The typical pattern is 'Pump and Dump,' where the manipulation gang preemptively buys a low liquidity token at a low price and then uses influencers (KOLs) or community shouting to release false good news, attracting a large number of retail investors to buy high, and finally selling at a high price for profit.
Market impact and legal consequences: This behavior led to the target token price experiencing rapid fluctuations, with the vast majority of following retail investors becoming 'bag holders.' The SEC has filed lawsuits against multiple such cases, accusing relevant influencers and project parties of promoting securities-type tokens without disclosing compensation, constituting fraud. This indicates that the regulatory scope has extended to market marketing and community opinion guidance.
Cross-market comparative analysis of manipulation logic
After analyzing the above specific cases, we can conduct a deeper comparison of the Jane Street case with the manipulation logic in the crypto world. Although the market carriers and technical tools are different, the underlying manipulation philosophy—using information, capital, or regulatory advantages to create unfairness—is common.
Manipulation patterns
Traditional financial market case (Jane Street case)
The logical counterpart and cases of the crypto asset market
Cross-market price distortion 'Intra-day index manipulation'
: Conducting large-scale trades in the relatively illiquid spot market, artificially influencing index prices, so that its reverse positions held in the more liquid derivatives market can profit. The core is to use trading behavior from one market as a tool to serve the profit objectives of another market.
Internal affiliated party manipulation (FTX/Alameda)
: One entity (Alameda) manipulates the market for its own profit by exploiting the rules and client assets of another affiliated entity (FTX). Both took advantage of structural advantages across entities or markets.
Key moment price influence 'Closing Price Manipulation'
: At key moments such as contract settlement, large transactions aim to push the final settlement price of the underlying asset in a direction favorable to their positions. The key point of this behavior is
Precisely influence benchmark prices at specific moments.
Price oracle manipulation (Mango Markets)
: At critical moments (such as before lending operations), instantly impacting the price of a particular asset through flash loans, distorting the price oracle relied upon by DeFi protocols, thereby achieving fraudulent profits.
Creating a false market appearance
By engaging in large-scale, high-intensity buying and selling, artificially creating price fluctuations in indices, transmitting false price and trading volume signals to the market, misleading other participants.
Algorithmic manipulation and social media manipulation (Hydrogen, Pump & Dump)
: Creating false trading volume (wash trading) through algorithmic bots or posting false information via social media, with the common goal of creating a false sense of prosperity or urgency, inducing others to make erroneous investment decisions.
Aiying's conclusion: The mantis stalks the cicada, but who is the yellow oriole?
The Jane Street case and a series of precedents in the crypto world collectively depict a vivid picture of the financial market, 'the mantis stalks the cicada, while the yellow oriole is behind.' However, in this game, who is the mantis, and who is the yellow oriole?
For many retail investors and small to medium-sized institutions immersed in candlestick chart fluctuations and chasing short-term hot spots, they are like the mantis focused on immediate prey (market Alpha). They often do not realize that every small pattern in their trading behavior, every emotional chase or sell-off, may be detected and exploited by more powerful predators—top quantitative institutions like Jane Street. These 'yellow orioles,' leveraging their capital, technology, and information advantages, are not playing against the 'market' but systematically 'hunting' those predictable behavioral patterns.
This reveals the first cruel truth of market games: your opponent may not be the 'market' or other retail investors as you imagine, but a highly rational professional predator with a god's-eye view. Losses are often not due to bad luck but because one’s position in the food chain has long been determined. However, the story does not end here. When the 'yellow oriole' mistakenly believes it is at the top of the food chain, intoxicated by the success of its hunt, it also exposes itself to the true 'hunter'—the regulatory agency's sight. The fines imposed on Jane Street illustrate that even the most powerful 'yellow oriole,' once its behavior crosses the red line of market fairness and undermines the foundation of the entire ecosystem, can also become a hunted target.
Therefore, for all market participants, true survival wisdom lies at two levels: first, to recognize the real opponent, restrain the 'mantis' instinct driven by short-term profits, and understand one's position in a jungle surrounded by 'yellow orioles.' Second, to truly revere market rules. Rational and strategic thinking should not only be applied to devising more sophisticated hunting strategies but also to understanding the boundaries and bottom lines of the entire ecosystem. Any attempt to gain excess returns by harming system fairness could lay the groundwork for future upheaval.
In this never-ending game, the ultimate winner is not the fiercest 'yellow oriole,' nor the most diligent 'mantis,' but those wise participants who can perceive the entire food chain, understand how to dance with the rules, and remain fully aware of risks.
