Stock exchange’s surveillance uncovers Jane Street’s ₹43,000-crore index fraud

The National Stock Exchange (NSE) demonstrated its exceptional surveillance capabilities by uncovering a sophisticated manipulation scheme orchestrated by the global trading firm Jane Street Group, leading to a significant regulatory crackdown. This revelation was made possible through NSE’s efficient detection and tracking of a high-frequency trading pattern that artificially manipulated the prices of Bank Nifty stocks, resulting in substantial profits in the options segment while undermining market integrity.

The Securities and Exchange Board of India (SEBI) acknowledged NSE’s infrastructure and vigilance in identifying what was described as “intra-day index manipulation,” where Jane Street aggressively bought and sold large positions in selected stocks to create price distortions that benefited their options trading. Despite incurring losses in stock trades, the group reportedly amassed over ₹43,000 crore in profits from index options, a discrepancy that was initially flagged by NSE.

NSE’s involvement in the investigation began when SEBI instructed the exchange to scrutinize Jane Street’s trading activities following media reports of suspicious behavior. In less than four months, NSE submitted an extensive report detailing its findings, showcasing the exchange’s swift surveillance capabilities and effective coordination with regulatory authorities. By issuing a cautionary letter to Jane Street before any formal SEBI action, NSE demonstrated its proactive approach to enforcing surveillance-based deterrents and maintaining market integrity.

What set NSE apart was its advanced surveillance infrastructure, which enabled trade-level and order-level analysis, minute-by-minute tracking, and real-time monitoring of market distortions directly linked to Jane Street’s trades. These technological advancements, unique to NSE among Indian exchanges, highlighted the exchange’s superior surveillance capabilities in capital markets monitoring.

The pivotal clue that led to the discovery of the manipulation scheme was the disproportionate profits Jane Street made solely from index options, alongside losses in other trading segments. NSE’s backend analytics also detected anomalous price movements in Bank Nifty stocks that deviated from broader market trends, supported by trade sequencing and volume-concentration data. Specific instances of manipulative trading on expiry days further implicated Jane Street, underscoring the thoroughness of NSE’s investigations.

Notably, the SEBI order did not mention any contribution from the Bombay Stock Exchange (BSE) in identifying irregularities or aiding the investigation, highlighting NSE’s dominance in regulatory surveillance and prompting SEBI to direct all exchanges to monitor Jane Street’s activities. NSE’s proven track record and swift action in uncovering the manipulation scheme have instilled confidence in investors and underscored the critical role of technological vigilance in safeguarding market integrity.

The Jane Street case serves as a stark reminder of the evolving landscape of modern capital markets, where high-frequency trading and cross-segment manipulations pose significant threats. NSE’s effective detection and collaboration with SEBI emphasize the importance of proactive monitoring, real-time analytics, and advanced surveillance tools in detecting and preventing market abuse. This episode calls on all exchanges to enhance their surveillance capabilities to combat sophisticated trading strategies and uphold investor trust and market stability in an increasingly complex financial environment.