2nd December 2025
Medium Link : https://medium.com/@gyvishwanath/scam-of-jane-street-4453183c055d
Course Relevance
This caselet is designed for the following PGDM / MBA courses:
- Investment Management:
Covers investments, scams and risk, - Financial Derivatives : applies finance concepts to futures, forwards and swaps. How futures markets are manipulated?
Academic Concepts
- This caselet draws on multiple applications of finance knowledge in avoiding and identifying scams in financial markets.
- It talks about the risk of manipulation of derivative prices.
- It discusses circular trading
- It talks about due diligence
Jane Street, a well-known global trading firm famous for its high-speed and algorithm-driven strategies, found itself in the middle of a major controversy in India. The scandal revolves around allegations of market manipulation that reportedly earned the company thousands of crores through unfair trading practices. Here’s how it all unfolded.
It began in December 2020, when Jane Street opened its first Indian company, called JSI Investments Pvt Ltd, in Mumbai. This marked the firm’s formal entry into the Indian market, mainly to participate in the fast-growing derivatives segment of the stock market.
For a few years, things seemed to go smoothly. But by April 2024, concerns started to surface. Media reports highlighted Jane Street’s aggressive trading patterns and linked it to a U.S. court case, where Jane Street had accused another firm of stealing its secret trading methods. These reports raised red flags, and India’s market regulator, SEBI (Securities and Exchange Board of India), began an official investigation.
Shortly after, in July and August 2024, the NSE (National Stock Exchange) took a closer look at Jane Street’s trades. They found patterns that didn’t sit well with them and sent the firm a cautionary letter. The NSE advised Jane Street to avoid large trades that looked like cash equivalents and to stop using certain questionable strategies. Jane Street replied to this letter, but the details of that response weren’t shared publicly.
By February 2025, SEBI’s internal investigation team found what they described as prima facie evidence basically, early proof that Jane Street had violated rules under the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulation.
SEBI claims that between January 2023 and March 2025, Jane Street carried out manipulative trades on about 21 important expiry days—these are days when monthly stock index contracts like Nifty and Bank Nifty expire. The firm allegedly coordinated its trades across the cash market, futures, and options to create an illusion of heavy activity. In simple terms, SEBI says Jane Street made it look like the market was moving naturally, when it was actually being influenced by their own trades. This reportedly helped the firm earn about ₹4,843 crore in unfair profits. The modus operandi of the strategy is to rig the prices of underlying stock at the closing hours of the market to profit from the subsequent huge movements in the options market. They were profiting both from option buying and writing in bulk.
As a result, on July 3, 2025, SEBI issued an interim order that barred Jane Street from operating in the Indian stock market and froze the ₹4,843 crore it had allegedly gained through these trades.
The very next day, July 4, SEBI’s order came into effect. Jane Street immediately disagreed with the findings and said that it always follows the rules. The firm also promised to respond through proper legal channels. By July 2025, SEBI gave Jane Street 21 days to submit its explanation before deciding on the next steps. The case remains under review.
There have been several stock market scams in India similar to Jane street , they are,
1. Pump and Dump Scam: Scammers artificially inflate a stock’s price by spreading false information, then sell their shares at the peak, leaving innocent investors with significant losses which they hold hoping the prices would recover , but it never happens.
2. Insider Trading: Company insiders use confidential information to buy or sell shares, giving them an unfair advantage in buying or selling shares. Usually its done with the connivance of top officers, auditors or other parties privy to the information. Insider trading carries huge punishment and penalties in USA and western countries. However, In India usually scamsters go scotfree with political connections.
3. Fake Tips Scam: Scammers pose as financial experts, sharing fake stock tips and convincing people to invest in worthless stocks which is usually done in collusion with TV channels, newspapers and media. First people accumulate worthless penny stocks and send fake tips as mentioned earlier and once the prices move up suddenly they unload and run away. There are many instances like that in Indian markets which SEBI is not able to trace and punish.
4.Circular Trading: Companies manipulate their financial reports to show fake profits, attracting investors and driving up the stock price. Along with this they will buy from one broker and their associates will be selling from others, eventually the same party buying and selling. Gullible investors are usually caught in the swirl and end up holding useless stocks. This method was present in Harshad Mehta scam too.
5.Churning: Brokers excessively buy and sell shares in a client’s account to generate more brokerage fees, usually buying and selling shares for a small difference.This is more prounounced in derivatives markets where the volumes are huge and brokerage is very high. Some times brokers would end up earning more than the investors total corpus by way of brokerages.
6.Ahmedabad-based Stock Manipulation Scam: A large-scale scam that duped around 4,000 investors through a pump-and-dump operation.
7.NSE Co-location Scam: Allegations of preferential access to the National Stock Exchange’s co-location facility, allowing some brokers to trade with an unfair advantage.
-8.Ponzi Scheme: Scammers promise unusually high returns on investments, using money from new investors to pay earlier investors.
Teaching note : This is a contemporary topic of interest for the students of investments and finance. Students need to know the happenings in the financial markets and in this regard, we are asking the students to understand this problem. Understanding this would cover the different types of trading in markets and how the markets can be manipulated by dubious traders. Funds with huge money power can move markets in their whim and make money n this is the sad truth. Hence our students and traders should be aware of these cases to better understand the market.
Teaching Note :
This topic is relevant for the security analysis,nternational Finance and derivatives course studied by the PGDM2 students. This covers what is a scam and how to identify and prevent scams. As we have discussed this knowledge will help in reducing the risk and making use of opportunities.
Learning Objectives
After engaging with this caselet, students will be able to:
- Analyze how scamster works
- Apply risk management concepts in real markets
- Evaluate the risk and return of strategies.
Key Discussion Points
- Importance of regulations in preventing scams
- How to reduce scams and how to educate investors in identifying scams.
Discussion Questions :
- Do you think the operation of Jane Street in India is Illegal?. Give your reasons.
- What are derivatives? Explain the economic necessity of derivatives trading.
References :
- Fama, Eugene F, Lawrence Fisher, Michael C, Jensen, and Richard Roll (1969). “The Adjustment of stock prices to New Information.” International Economic Review,10(1), 1-21.
- Figlewski, S. (1984). “Hedging Performance and Basis Risk in Stock Index Futures.” The Journal of Finance, 39(3), 657-669.
3. Grant, D. (1982). “Market Index Futures Contract and Portfolio Selection.” Journal of conomics and Business, 34(14), 387-390.
4.Madhumathi. R & Ranganatham. M (2012).
“Derivatives and Risk Management.”
