Capital market regulator Sebi’s July 3 interim order barring proprietary trading firm Jane Street for unlawful gains has prompted few traders who had lost money to suspect that their trading strategy failed due to alleged manipulation by Jane Street-controlled entities. Some of these participants are now seeking more stringent action against the firm, including criminal prosecution against entities involved.
Legal experts believe that watchdog indeed has such powers under the Sebi Act, though it has not been used much, and applied judiciously in only select cases impacting market integrity.
“Pursuant to Section 24 of the Sebi Act, 1992, Sebi has the statutory authority to initiate criminal prosecution against any person or entity found guilty of contravening the provisions of the Act or any rules or regulations made thereunder. In the case of Jane Street, if market manipulation is established and falls within the purview of fraudulent or unfair trade practices, Sebi is well within its jurisdiction to commence prosecution proceedings,” Sonam Chandwani, Managing Partner KS Legal & Associates said. Section 24 (1) prescribes imprisonment of up to 10 years or a fine of upto Rs 25 crore, or both.
Chandwani added, “In a scenario where Jane Street is found to have willfully engaged in manipulative practices affecting the Indian securities market, Sebi not only has the mandate but also the legal standing to initiate and pursue criminal prosecution under the existing legislative framework.”
Another legal expert said that market manipulation is a serious breach of integrity, and such conduct typically falls under the ambit of the Sebi (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations). These regulations, when read with Section 24, provide a cohesive framework empowering Sebi not only to impose monetary penalties and pass remedial directions but also to pursue criminal prosecution before a competent court.
Mayank Bansal, the hedge fund manager who noticed and alerted about the alleged manipulative trades by Jane Street said, “Such large-scale systemic manipulation of India's premier indices for a period as large as two years commands nothing short of invoking of the highest possible powers at Sebi's disposal. There is no bigger financial fraud that a person can do against a nation.”
Mayank further adds, “Market manipulation is treated as a very serious offense by the SEC and the DoJ (Department of Justice) in the US too, with multiple prominent traders having faced jail term for precisely this felony.”
But Sebi uses this power not very frequently. Ravi Prakash, Associate Partner, Corporate Professionals, says, “Sebi will not typically pursue criminal prosecution unless the gravity of the offence, repetition of violations, the impact on investors, and the intention behind the offence point to a high level of misconduct. In cases where violations are deliberate and repetitive, and the interests of investors are significantly harmed, Sebi may deem the case serious enough to justify criminal prosecution”.
Ravi further explains, “The reasons for Sebi’s relative infrequency in invoking criminal prosecution is because Sebi generally adopts a policy of using their in-house measures (banning, penalties, disgorgement etc, as provided under Securities laws) as the primary enforcement tools. This allows Sebi to address a wide range of violations effectively, swiftly and without the complexities and delays associated with criminal law procedure”.
Also Read: Sebi likely to probe if Jane Street violated index position limits in F&O segment
Jane Street has disputed the allegations in Sebi’s interim order, and has communicated to its staff that it will challenge the ban by Sebi. The trades under question were ‘basic index arbitrage trading’, Jane Street told its employees, adding that it was ‘beyond disappointed’ by what it called ‘extremely inflammatory’ accusations by Sebi, and is working on a formal response.
The National Stock Exchange (NSE) in letter dated February 6, 2025 addressed to Jane Street had pointed at violation of Sebi rules. “The above trading activity prima facie appears to be fraudulent and manipulative in terms of dealing in top constituents of index in cash market / futures segment and taking relatively large size contra position in options expiring on that day on the same index,” NSE’s letter said.
Sebi interim order has highlighted the violation flagged off by NSE in its order. “Prima facie, the aforesaid trading patterns employed by the JS Group fall foul of regulation 4(2)(a) and 4(2)(e) of the PFUTP Regulations and the schemes as a whole are prima facie a fraudulent device prohibited by section 12A of the SEBI Act and regulations 3(a)-(d) and 4(1) of the PFUTP Regulations.”
Regulation 4(2)(a) of PFUTP deems any act to be manipulative or fraudulent if it creates false or misleading appearance of trading in the securities market. Regulation 4(2)(e) deems any act to be fraudulent or manipulative if it amounts to manipulation of price of a security, or manipulates the benchmark price of any securities.
Also Read: Market manipulation will not be tolerated: SEBI chairman Tuhin Kanta Pandey
The watchdog in its order has said that Jane Street resorted to undertaking prima facie manipulative ‘extended marking the close’ trading pattern on the index and constituent stocks towards the close on expiry day, so as to influence and manipulate the index for illegal advantage.
As per Sebi, Jane Street made a profit of Rs 36,671 crore between January 2023 and March 2025. The regulator in its interim order has directed to impound Rs 4843.5 crore that it believes were gains made through unfair trades.
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