1. The Bigger Picture: Why SEBI Intervened
India is currently the world’s largest equity derivatives market in terms of contracts traded. On expiry days, the trading volume in index derivatives—especially options—is often more than 300 times higher than that of the cash market. This unprecedented scale might sound like a success story at first glance, but SEBI, the Securities and Exchange Board of India, saw warning signs flashing bright red.
Over the past few years, retail traders have swarmed into the derivatives space, especially index options like Bank Nifty and Nifty 50. Most of them are drawn in by the promise of quick profits and leveraged exposure. However, a SEBI study revealed that 91% of retail traders in derivatives ended up losing money. That’s an alarming statistic. It signaled that the market was becoming speculative rather than investment-oriented.
Additionally, the structure of the market had become heavily tilted towards short-tenure options—weekly, and even daily expiries—turning it into a speculative playground. This over-dependence on weekly contracts resulted in wild swings, sharp intraday moves, and extreme volatility, especially on Thursdays (the weekly expiry day). This environment wasn't healthy—neither for long-term investors nor for the broader financial ecosystem.
SEBI saw this as a structural issue and decided to take bold steps to reform the derivatives market and make it safer, more rational, and more sustainable.
2. SEBI’s Core Reforms: Changing the Game
a) Extending Contract Tenure
One of the biggest problems SEBI identified was the overuse of ultra-short-term contracts. Weekly options had become the norm, with traders focusing on short bursts of market movement rather than making informed investment or hedging decisions.
To counter this, SEBI is planning to extend the tenure of derivative contracts. This means:
Less frequent expiries.
Longer-dated instruments becoming more liquid.
Reduced scope for expiry-based volatility and manipulation.
By pushing the market toward longer expiry contracts (like monthly and quarterly), SEBI wants to encourage thoughtful strategies, proper hedging, and discourage fast-money, short-term gambling.
b) Discouraging Retail Over-Speculation
Retail participation in the F&O market has skyrocketed, but most retail traders don’t fully understand the risks involved. SEBI has already taken several steps to discourage reckless speculation, such as:
Reducing the number of expiries per month.
Increasing the lot size of index futures and options, making it harder for small-ticket traders to over-leverage.
Introducing detailed risk disclosures on broker apps to educate traders about potential losses.
These steps are aimed at protecting small investors and bringing more stability to the market.
c) Focusing on the Cash Market
India’s cash equity market is relatively underdeveloped when compared to its derivatives segment. SEBI aims to rebalance this. By encouraging growth in the cash market, SEBI hopes to reduce the over-reliance on F&O and create a healthier, more resilient market structure.
3. The Jane Street Controversy: What Happened?
In July 2025, SEBI dropped a regulatory bombshell by banning Jane Street, a major US-based high-frequency trading (HFT) firm, from Indian markets. This wasn’t just a slap on the wrist—it was a full-blown interim order with massive consequences.
The Allegations:
SEBI alleged that Jane Street engaged in manipulative expiry-day strategies over a multi-year period. Here’s what SEBI believes happened:
In the morning of expiry days, Jane Street allegedly bought large volumes of index-heavy stocks. This artificially pushed the index higher.
At the same time, they opened short positions in index options, betting that the index would fall later.
In the afternoon, they unwound their stock positions, which pulled the index down.
As the index dropped, their short options positions profited heavily.
This strategy allowed them to make massive profits on expiry days, using their firepower to allegedly manipulate both the cash and derivative markets.
SEBI’s Action:
Barred Jane Street from trading in Indian markets.
Ordered them to deposit over ₹4,800 crore (~$570 million) in suspected unlawful gains.
Accused the firm of using its dominant market position to rig expiry-day movements.
Jane Street, of course, denied the allegations, claiming that their trades were legal arbitrage and part of liquidity provisioning. They are challenging the order in court, but the damage—both reputational and market-wide—has already been done.
4. The Immediate Fallout: Markets Take a Hit
The ban on Jane Street had a chilling effect on the market. Here's what followed:
a) Volume Drops
Jane Street was a major market maker in India’s derivatives space, especially on expiry days. After the ban:
F&O volumes dropped by over 30%.
Index options saw significantly reduced liquidity.
The premium turnover on the NSE fell by nearly 36%.
This wasn’t just a temporary blip. It revealed how dependent the Indian market had become on a few HFT firms to provide liquidity and manage spreads.
b) Volatility Dips
Interestingly, India’s volatility index (VIX) dropped to multi-month lows post the ban. With fewer players like Jane Street aggressively trading expiry moves, the markets became calmer. While this might seem good, too little volatility can reduce trading opportunities and narrow market participation.
c) Wider Spreads and Execution Slippage
With fewer market makers and less volume, traders—especially institutions—began facing wider bid-ask spreads. That means it became more expensive to execute trades, especially in large quantities. This can hurt mutual funds, FIIs, and even large domestic traders.
5. Broader Implications for the Indian Market
a) SEBI’s Strength as a Regulator
This episode showcases that SEBI is serious about enforcing discipline, even if it means challenging a global giant like Jane Street. That sends a strong signal to both domestic and international players: India’s markets are not a free-for-all.
b) Liquidity Vacuum
With Jane Street gone, there's a temporary liquidity vacuum. Other firms are cautious, unsure if they might be targeted next. SEBI needs to strike a balance—encouraging good players while weeding out bad behavior.
c) Investor Confidence and Market Maturity
While retail traders might find the new reforms and lower volatility frustrating, long-term investors and institutions are likely to benefit from a more predictable and transparent market.
6. Legal Battle and Global Ramifications
Jane Street has taken the legal route, depositing the required funds while appealing the SEBI ban. Depending on how the case proceeds:
It could set new legal precedents in Indian market jurisprudence.
It may influence how SEBI handles future cases involving algorithmic or HFT trading.
Other global firms might review or revise their India strategies, balancing opportunity with regulatory risk.
If SEBI wins the case, it strengthens its position as a tough, credible regulator. If Jane Street wins, it may force SEBI to revisit how it defines and regulates market manipulation, especially in the algo/HFT space.
7. What This Means for You (the Trader/Investor)
For Retail Traders:
Expect fewer sharp expiry-day moves. Strategies based on quick, expiry-day scalping may need to be adapted.
Market may feel slower, but potentially safer.
You’ll need to focus more on strategy, research, and planning, instead of gambling on weekly moves.
For Institutions:
Market access costs may rise due to wider spreads.
Less volatility may reduce arbitrage and quant trading opportunities.
Need for more diversified trading models, including participation in the cash and bond markets.
For Market Observers and Policy Thinkers:
This is a rare opportunity to watch a major regulatory shift unfold.
India’s market is transitioning from being a trader’s playground to an investor’s ecosystem.
8. What Comes Next?
SEBI will likely roll out more reforms—stricter monitoring, revised rules for expiry days, and enhanced surveillance.
New market makers may enter the space, possibly Indian firms or global ones with stronger compliance protocols.
Jane Street’s legal outcome will influence how aggressively foreign algo firms operate in India going forward.
✍️ Final Word
The SEBI vs Jane Street saga is more than a single enforcement action—it’s a symbol of India’s market maturity. By reforming derivatives and holding big players accountable, SEBI is trying to create a safer, more balanced market for everyone—from retail investors to institutional giants.
The road ahead may involve some pain—lower volumes, fewer trading thrills—but the foundation being laid could ensure a more sustainable, fair, and globally respected financial market
India is currently the world’s largest equity derivatives market in terms of contracts traded. On expiry days, the trading volume in index derivatives—especially options—is often more than 300 times higher than that of the cash market. This unprecedented scale might sound like a success story at first glance, but SEBI, the Securities and Exchange Board of India, saw warning signs flashing bright red.
Over the past few years, retail traders have swarmed into the derivatives space, especially index options like Bank Nifty and Nifty 50. Most of them are drawn in by the promise of quick profits and leveraged exposure. However, a SEBI study revealed that 91% of retail traders in derivatives ended up losing money. That’s an alarming statistic. It signaled that the market was becoming speculative rather than investment-oriented.
Additionally, the structure of the market had become heavily tilted towards short-tenure options—weekly, and even daily expiries—turning it into a speculative playground. This over-dependence on weekly contracts resulted in wild swings, sharp intraday moves, and extreme volatility, especially on Thursdays (the weekly expiry day). This environment wasn't healthy—neither for long-term investors nor for the broader financial ecosystem.
SEBI saw this as a structural issue and decided to take bold steps to reform the derivatives market and make it safer, more rational, and more sustainable.
2. SEBI’s Core Reforms: Changing the Game
a) Extending Contract Tenure
One of the biggest problems SEBI identified was the overuse of ultra-short-term contracts. Weekly options had become the norm, with traders focusing on short bursts of market movement rather than making informed investment or hedging decisions.
To counter this, SEBI is planning to extend the tenure of derivative contracts. This means:
Less frequent expiries.
Longer-dated instruments becoming more liquid.
Reduced scope for expiry-based volatility and manipulation.
By pushing the market toward longer expiry contracts (like monthly and quarterly), SEBI wants to encourage thoughtful strategies, proper hedging, and discourage fast-money, short-term gambling.
b) Discouraging Retail Over-Speculation
Retail participation in the F&O market has skyrocketed, but most retail traders don’t fully understand the risks involved. SEBI has already taken several steps to discourage reckless speculation, such as:
Reducing the number of expiries per month.
Increasing the lot size of index futures and options, making it harder for small-ticket traders to over-leverage.
Introducing detailed risk disclosures on broker apps to educate traders about potential losses.
These steps are aimed at protecting small investors and bringing more stability to the market.
c) Focusing on the Cash Market
India’s cash equity market is relatively underdeveloped when compared to its derivatives segment. SEBI aims to rebalance this. By encouraging growth in the cash market, SEBI hopes to reduce the over-reliance on F&O and create a healthier, more resilient market structure.
3. The Jane Street Controversy: What Happened?
In July 2025, SEBI dropped a regulatory bombshell by banning Jane Street, a major US-based high-frequency trading (HFT) firm, from Indian markets. This wasn’t just a slap on the wrist—it was a full-blown interim order with massive consequences.
The Allegations:
SEBI alleged that Jane Street engaged in manipulative expiry-day strategies over a multi-year period. Here’s what SEBI believes happened:
In the morning of expiry days, Jane Street allegedly bought large volumes of index-heavy stocks. This artificially pushed the index higher.
At the same time, they opened short positions in index options, betting that the index would fall later.
In the afternoon, they unwound their stock positions, which pulled the index down.
As the index dropped, their short options positions profited heavily.
This strategy allowed them to make massive profits on expiry days, using their firepower to allegedly manipulate both the cash and derivative markets.
SEBI’s Action:
Barred Jane Street from trading in Indian markets.
Ordered them to deposit over ₹4,800 crore (~$570 million) in suspected unlawful gains.
Accused the firm of using its dominant market position to rig expiry-day movements.
Jane Street, of course, denied the allegations, claiming that their trades were legal arbitrage and part of liquidity provisioning. They are challenging the order in court, but the damage—both reputational and market-wide—has already been done.
4. The Immediate Fallout: Markets Take a Hit
The ban on Jane Street had a chilling effect on the market. Here's what followed:
a) Volume Drops
Jane Street was a major market maker in India’s derivatives space, especially on expiry days. After the ban:
F&O volumes dropped by over 30%.
Index options saw significantly reduced liquidity.
The premium turnover on the NSE fell by nearly 36%.
This wasn’t just a temporary blip. It revealed how dependent the Indian market had become on a few HFT firms to provide liquidity and manage spreads.
b) Volatility Dips
Interestingly, India’s volatility index (VIX) dropped to multi-month lows post the ban. With fewer players like Jane Street aggressively trading expiry moves, the markets became calmer. While this might seem good, too little volatility can reduce trading opportunities and narrow market participation.
c) Wider Spreads and Execution Slippage
With fewer market makers and less volume, traders—especially institutions—began facing wider bid-ask spreads. That means it became more expensive to execute trades, especially in large quantities. This can hurt mutual funds, FIIs, and even large domestic traders.
5. Broader Implications for the Indian Market
a) SEBI’s Strength as a Regulator
This episode showcases that SEBI is serious about enforcing discipline, even if it means challenging a global giant like Jane Street. That sends a strong signal to both domestic and international players: India’s markets are not a free-for-all.
b) Liquidity Vacuum
With Jane Street gone, there's a temporary liquidity vacuum. Other firms are cautious, unsure if they might be targeted next. SEBI needs to strike a balance—encouraging good players while weeding out bad behavior.
c) Investor Confidence and Market Maturity
While retail traders might find the new reforms and lower volatility frustrating, long-term investors and institutions are likely to benefit from a more predictable and transparent market.
6. Legal Battle and Global Ramifications
Jane Street has taken the legal route, depositing the required funds while appealing the SEBI ban. Depending on how the case proceeds:
It could set new legal precedents in Indian market jurisprudence.
It may influence how SEBI handles future cases involving algorithmic or HFT trading.
Other global firms might review or revise their India strategies, balancing opportunity with regulatory risk.
If SEBI wins the case, it strengthens its position as a tough, credible regulator. If Jane Street wins, it may force SEBI to revisit how it defines and regulates market manipulation, especially in the algo/HFT space.
7. What This Means for You (the Trader/Investor)
For Retail Traders:
Expect fewer sharp expiry-day moves. Strategies based on quick, expiry-day scalping may need to be adapted.
Market may feel slower, but potentially safer.
You’ll need to focus more on strategy, research, and planning, instead of gambling on weekly moves.
For Institutions:
Market access costs may rise due to wider spreads.
Less volatility may reduce arbitrage and quant trading opportunities.
Need for more diversified trading models, including participation in the cash and bond markets.
For Market Observers and Policy Thinkers:
This is a rare opportunity to watch a major regulatory shift unfold.
India’s market is transitioning from being a trader’s playground to an investor’s ecosystem.
8. What Comes Next?
SEBI will likely roll out more reforms—stricter monitoring, revised rules for expiry days, and enhanced surveillance.
New market makers may enter the space, possibly Indian firms or global ones with stronger compliance protocols.
Jane Street’s legal outcome will influence how aggressively foreign algo firms operate in India going forward.
✍️ Final Word
The SEBI vs Jane Street saga is more than a single enforcement action—it’s a symbol of India’s market maturity. By reforming derivatives and holding big players accountable, SEBI is trying to create a safer, more balanced market for everyone—from retail investors to institutional giants.
The road ahead may involve some pain—lower volumes, fewer trading thrills—but the foundation being laid could ensure a more sustainable, fair, and globally respected financial market
Hello Guys ..
WhatsApp link- wa.link/d997q0
Email - techncialexpress@gmail.com ...
Script Coder/Trader//Investor from India. Drop a comment or DM if you have any questions! Let’s grow together!
WhatsApp link- wa.link/d997q0
Email - techncialexpress@gmail.com ...
Script Coder/Trader//Investor from India. Drop a comment or DM if you have any questions! Let’s grow together!
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Hello Guys ..
WhatsApp link- wa.link/d997q0
Email - techncialexpress@gmail.com ...
Script Coder/Trader//Investor from India. Drop a comment or DM if you have any questions! Let’s grow together!
WhatsApp link- wa.link/d997q0
Email - techncialexpress@gmail.com ...
Script Coder/Trader//Investor from India. Drop a comment or DM if you have any questions! Let’s grow together!
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.