Quantitative trading giant Jane Street fined $580 million for systemic manipulation, what warning does this pose for the encryption industry?

In July 2025, the global financial markets were shaken by a bombshell news. The top quant trading firm Jane Street was fined a record 48.43 billion rupees (approximately 580 million USD) by the Securities and Exchange Board of India (SEBI) for systematic index manipulation in the Indian market, and was temporarily banned from market access. At the heart of this incident is a 105-page SEBI interim investigation report that details how technologically advanced "players" exploit the asymmetry of market structure for profit.

This is not just an incident of exorbitant fines, but also a profound warning to all trading institutions globally that rely on complex algorithms and technological advantages, especially virtual asset institutions that operate in the "gray area" of regulation. When extreme quantitative strategies fundamentally conflict with market fairness and regulatory intentions, technological advantages will no longer be a "protective talisman"; instead, they may become evidence pointing back to oneself.

Part One: "Perfect Storm" Review - How Jane Street Wove a Manipulation Web?

To understand the far-reaching implications of this case, it is essential to clearly restore the manipulation methods that Jane Street is accused of. This is not an isolated technical error or a chance strategic deviation, but a carefully designed, systematically executed, large-scale, and highly covert "yangmou". SEBI's report reveals its two core strategies in detail.

Core Strategy Analysis: The Operating Mechanism of Two Major "Yangmou"

According to SEBI's investigation, Jane Street primarily employed two interrelated strategies that repeatedly unfolded on multiple BANKNIFTY and NIFTY index options expiration dates, with the core focus on profiting from the liquidity differences and price transmission mechanisms between different markets.

Strategy 1: "Intra-day Index Manipulation" (Intra-day Index Manipulation)

This strategy is divided into two clear phases, like a meticulously choreographed play, aimed at creating a market illusion and ultimately harvesting.

Stage One (Morning/Patch I): Create false prosperity to lure the enemy deeper.

• Behavior: Through its locally registered entity in India (JSI Investments Private Limited), it invests billions of rupees in the relatively low liquidity spot (Cash) and stock index component futures (Stock Futures) markets, aggressively buying large amounts of key component stocks of the BANKNIFTY index, such as HDFC Bank, ICICI Bank, etc.

• Tactics: Their trading behavior is highly aggressive. Reports indicate that Jane Street's buy orders are usually higher than the latest market transaction price (LTP) at the time, actively "pushing up" or strongly "supporting" the prices of component stocks, thereby directly boosting the BANKNIFTY index. During certain periods, their trading volume even accounts for 15% to 25% of the total trading volume of individual stocks, creating a force sufficient to guide prices.

• Purpose: The sole purpose of this action is to create the illusion that the index is experiencing a strong rebound or stabilization. This will directly affect the highly liquid options market, resulting in the artificially inflated prices of call options while the prices of put options are correspondingly suppressed.

• Coordinated Actions: While creating "noise" in the spot market, Jane Street's overseas FPI entities (such as Jane Street Singapore Pte. Ltd.) quietly operate in the options market. They take advantage of distorted options prices to buy large quantities of put options at a very low cost and sell call options at inflated prices, thereby building a massive short position. The SEBI report indicates that the notional value (cash-equivalent) of their options positions is multiple times the capital they have invested in the spot/futures markets; for example, on January 17, this leverage ratio reached as high as 7.3 times.

Phase Two (Afternoon/Patch II): Reverse harvesting, achieving profits.

• Behavior: During the afternoon trading session, especially close to the market close, Jane Street's local entities will make a 180-degree turn, systematically and aggressively selling off all positions bought in the morning, and sometimes even increasing their sell-off.

• Tactics: Unlike in the morning, the selling price is usually lower than the market LTP, actively "suppressing" the prices of constituent stocks, leading to a rapid decline in the BANKNIFTY index.

• Profit Loop: The sharp decline of the index caused the value of the massive put options established in the morning to soar, while the value of the call options dropped to zero. In the end, the enormous profits gained in the options market far outweighed the certain losses incurred in the spot/futures market due to "buy high and sell low." This model constitutes a perfect profit loop.

Strategy Two: "Closing Price Manipulation" (Extended Marking The Close)

This is another more direct manipulation method, mainly focused on the last stage of the trading day, especially during the settlement window period of options contracts.

'Extended marking the close' refers to a manipulative trading behavior where an entity, at the last moments of a trading session, places large buy or sell orders with the intention of influencing the closing price of a security or index, thereby profiting from their held derivative positions.

On certain trading days, Jane Street did not adopt a round-the-clock "buy-sell" model, but instead, after 14:30, when it held a large number of soon-to-expire options positions, suddenly engaged in large-scale one-way trading (buying or selling) in the spot and futures markets to push the final settlement price of the index in its favor.

Key evidence and data support

The allegations from SEBI are not unfounded, but are based on a vast amount of trading data and rigorous quantitative analysis.

Scale and Concentration: The report presents detailed tables (such as Table 7, 8, 16, 17) showing Jane Street's remarkable trading volume share within specific time windows. For example, on January 17, 2024, in the ICICIBANK spot market, its buy transaction volume accounted for 23.33% of the total buy transaction volume in the entire market. This market dominance is a prerequisite for its ability to influence prices.

Price Impact Analysis (LTP Impact Analysis): This is a major highlight in the SEBI report. The regulatory agency not only analyzed trading volume but also assessed the "intent" of the trades through LTP impact analysis. The analysis shows that during the upward phase, Jane Street's trades had a significant positive price impact on the index; whereas during the downward phase, they had a significant negative impact. This strongly refutes any potential defense of "normal trading" or "providing liquidity", proving that their actions had a clear purpose of "driving up" or "suppressing" the market.

Cross-entity collaboration and regulatory avoidance: SEBI clearly pointed out that Jane Street skillfully circumvented the restriction that a single FPI cannot engage in intraday trading by utilizing a combination of its local entity in India (JSI Investments) and overseas FPI entities. The local entity is responsible for high-frequency intraday reversal trades (buying and then selling) in the spot market, while the FPI entities hold and benefit from large options positions. This "left hand hitting the right hand" coordinated manipulation model demonstrates the premeditated and systematic nature of its behavior.

Part Two: The "Sky Net" of Regulation - SEBI's Penalty Logic and Core Warnings

In the face of the complex and highly technical trading strategies of Jane Street, SEBI's penalty decision did not get lost in an endless inquiry into its algorithmic "black box," but instead hit the nail on the head, addressing the essence of its behavior and the damage to market fairness. The regulatory logic reflected behind this constitutes a strong warning to all technology-driven trading institutions, especially participants in the virtual asset space.

SEBI's penalty logic: Qualifying 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 penalty logic is not based on "Jane Street made money," but rather on "the way Jane Street made money is wrong."

The key qualitative basis is as follows:

1. Creating false or misleading market appearances (Regulation 4(2)(a)): SEBI believes that Jane Street, through its large-scale and high-intensity buying and selling activities, artificially created fluctuations in the index, which transmitted false price signals to the market, misleading the judgments of other participants (especially retail investors who rely on price signals to make decisions). 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 clearly states that the actions of Jane Street are directly aimed at influencing the BANKNIFTY index—a significant market benchmark price. All its operations in the spot and futures markets are intended to move this benchmark price in a direction favorable to its derivative positions. This is considered a typical case of price manipulation.

3. Lack of independent economic rationality: This is the "trump card" in SEBI's argument. The regulatory authority pointed out that Jane Street's intraday high-buy low-sell reversal trading in its spot/futures market must inevitably lead to losses from a single business perspective. The report data shows that in 15 days of "intraday index manipulation" trading, it accumulated losses of 1.997 billion rupees in the spot/futures market. This behavior of "deliberate losses" precisely proves that these trades are not for investment or normal arbitrage but serve as a "cost" or "tool" to manipulate for greater profits in the options market.

Core Warning: Technically neutral, but the people using technology have positions.

The most profound warning of this case is that it clearly draws a red line:

In today's world, where regulation is becoming increasingly refined and principled, a pure technical and mathematical advantage, if lacking respect for market fairness and regulatory intentions, may easily cross the legal red line.

The boundary of technological advantages: Jane Street undoubtedly possesses the world's top algorithms, low-latency execution systems, and superior risk management capabilities. However, when this ability is used to systematically create information asymmetry and disrupt the market's price discovery function, it transforms from a "tool for enhancing efficiency" into a "weapon for manipulation." Technology itself is neutral, but the way it is applied and the intent behind it determine the legitimacy of its actions.

The new regulatory paradigm of "principle-based" regulation: Global regulatory agencies, including SEBI, SEC, etc., are increasingly evolving from a "rule-based" approach to a "principle-based" regulatory philosophy. This means that even if a complex trading strategy does not explicitly violate a specific rule, it may still be deemed manipulative if its overall design and final effect contradict the fundamental market principles of "fairness, equity, and transparency." Regulators will ask a fundamental question: "What benefit does your behavior bring to the market, aside from harming others' interests for your own gain?" If the answer is negative, then the risk is extremely high.

Ignoring the warning of "arrogance": A catalyst for severe punishment

SEBI particularly emphasized an aggravating circumstance in the report: In February 2025, the National Stock Exchange of India (NSE) issued a clear warning letter to Jane Street, instructing it to cease suspicious trading patterns, based on SEBI's directive. However, the investigation found that Jane Street continued to employ similar "closing price manipulation" techniques to manipulate the NIFTY index in the subsequent month of May.

This behavior is viewed by SEBI as a blatant disregard for regulatory authority and "not a good faith actor." This is not only one of the reasons for the exorbitant fines imposed but also an important catalyst for SEBI to take the severe temporary measure of "prohibiting market access." This serves as a lesson for all market participants: communication and commitments with regulatory agencies must be taken seriously, and any form of complacency 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

The influence of the Jane Street case