SEBI proposes sweeping reforms to Algo Trading Rules after a ₹4,843 crore Jane Street probe exposed vulnerabilities in India’s derivatives market, aiming to protect retail investors.
India’s financial markets are bracing for sweeping regulatory changes as the Securities and Exchange Board of India (SEBI) moves to tighten controls on algorithmic and proprietary trading. The crackdown follow
India’s financial markets are bracing for sweeping regulatory changes as the Securities and Exchange Board of India (SEBI) moves to tighten controls on algorithmic and proprietary trading. The crackdown follows a high-profile probe into U.S.-based high-frequency trading firm Jane Street Group, accused of manipulating the country’s derivatives market to generate ₹4,843.57 crore in unlawful gains.
At a Glance: SEBI vs Jane Street
Timeline
- January 2023 – March 2025: Alleged manipulation of Bank Nifty Index
- July 2025: SEBI issues interim order against Jane Street
- July 21, 2025: Trading ban lifted after escrow deposit
- August 11, 2025: SEBI releases new algo trading reform proposals
Alleged Gains
- ₹4,843.57 crore (approx. USD 580 million) through high-frequency trading strategies
Allegations
- Market manipulation via “dual-entity” model (JSI Investments plus offshore arms)
- Targeted expiry-day trades to move index prices
Regulatory Response
- Temporary trading ban and asset freeze
- Escrow deposit requirement
- New rules: order-to-trade ratio limits, AI-powered surveillance, resident director mandate
Global Angle
- U.S. SEC reportedly seeking information from SEBI
- Highlights need for cross-border market regulation
Why It Matters
- Retail investors hold over 35 percent of India’s derivatives contracts
- Reforms aim to reduce volatility and strengthen market integrity
Jane Street Probe Exposes Market Vulnerabilities
In July 2025, SEBI issued an interim order against Jane Street, alleging the firm used sophisticated algorithmic strategies to manipulate the Bank Nifty Index between January 2023 and March 2025. According to SEBI, the firm operated a “dual-entity” model — using its Indian arm JSI Investments alongside offshore entities — to influence index prices, particularly on expiry days.
The regulator temporarily barred Jane Street from trading, froze its assets, and ordered it to deposit the alleged gains into an escrow account. By July 21, 2025, the ban was lifted after compliance, but the firm remains under strict monitoring.
Jane Street has denied wrongdoing, calling the allegations a “misunderstanding” of standard hedging practices, and has engaged legal counsel to challenge SEBI’s findings. The case has drawn global attention, with the U.S. Securities and Exchange Commission (SEC) reportedly seeking details from Indian regulators.
Key Fact: Retail investors account for more than 35% of India’s futures and options contracts, making the market particularly vulnerable to manipulative algo-driven strategies.
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SEBI’s Proposed Reforms: Stricter Controls on Algo Trading
On August 11, 2025, SEBI released a consultation paper detailing reforms aimed at integrating algo and proprietary trading into core stockbroker regulations. The proposals include:
- Order-to-Trade Ratio Caps to curb excessive order placements.
- Mandatory System Audits to ensure compliance and cybersecurity.
- Real-Time Tagging of Algo Orders for better market surveillance.
- Enhanced Record-Keeping to improve transparency.
- Resident Director Requirement for stockbrokers to ensure local accountability.
The regulator also plans to scrap the outdated “small investor” definition, aligning norms with current market realities. Public comments are open until September 3, 2025, with phased implementation expected in FY25–26.
Must Read: Regulatory Framework of the Indian Stock Market
Algo Trading Rules: Why It Matters for Investors
India’s derivatives market is one of the largest globally, and its heavy retail participation makes it susceptible to manipulation. SEBI’s reforms — including AI-powered surveillance and real-time monitoring — aim to create a fairer trading environment.
For retail traders, the changes promise greater protection and reduced volatility. For global firms, they signal that India is ready to enforce tougher market governance and closer cross-border regulatory cooperation.
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What’s Next?
Industry experts expect higher compliance costs for brokers and proprietary trading firms, alongside a decline in high-frequency strategies on expiry days. But in the long term, analysts say the reforms will improve market stability and investor confidence.
With tax evasion angles also under examination, the Jane Street probe has set the tone for one of SEBI’s most aggressive market clean-up drives in recent history.