105-page report reveals the algorithmic manipulation behind Jane Street's $48.4 billion fines

In July 2025, the global financial market was shaken by a piece of heavy news. Jane Street, a top quantitative trading giant known for its mystery and elite, was fined a record 48.43 billion rupees (about 580 million US dollars) by the Securities and Exchange Board of India (SEBI) for systematic index manipulation in the Indian market, and was temporarily banned from market access. The core document of this incident is a 105-page SEBI interim investigation report, which is like a detailed script, revealing how the top technical "players" take advantage of the asymmetry of the market structure to reap.

Aiying's research team spent a week deeply analyzing SEBI's investigation report, from case review, regulatory logic, market impact, technical reflection, to the correlation mapping and future prospects with the Crypto field, to interpret the "Sword of Damocles" of compliance hanging over the heads of all participants in the virtual asset market, and explore how to move forward steadily on the tightrope of technological innovation and market fairness.

Part I: "Perfect Storm" Review-How does Jane Street weave a web of manipulation?

To understand the far-reaching impact of this case, we must first clearly restore the manipulation methods that Jane Street is accused of. This is not an isolated technical error or accidental strategic deviation, but a set of carefully designed, systematically executed, large-scale and highly concealed "overt conspiracy". SEBI's report reveals its two core strategies in detail.

1. Analysis of core strategies: the operating mechanism of the two "overt conspiracies"

According to SEBI's investigation, Jane Street mainly used two interrelated strategies, which were repeatedly performed on the option expiration dates of multiple BANKNIFTY and NIFTY indices. The core of this strategy is to use the liquidity differences and price transmission mechanisms between different markets to make profits.

Strategy 1: "Intra-day Index Manipulation"

This strategy is divided into two clear stages, like a carefully choreographed drama, designed to create market illusions and ultimately reap profits.

Phase I (Morning / Patch I): Create false prosperity and lure the enemy deeper.

• Behavior: Through its local entity registered in India (JSI Investments Private Limited), it invested billions of rupees in the relatively low-liquidity cash and stock index futures markets, and bought a large number of key components of the BANKNIFTY index, such as HDFC Bank and ICICI Bank, in a large and aggressive manner.

• Method: Its trading behavior is extremely aggressive. The report shows 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 constituent stocks, thereby directly pulling up the BANKNIFTY index. In some periods, its trading volume even accounts for 15% to 25% of the total trading volume of individual stock markets, forming a force sufficient to guide prices.

• Purpose: The only purpose of this move is to create the illusion that the index is rebounding strongly or stabilizing. This will directly affect the highly liquid options market, causing the prices of call options to be artificially pushed up, while the prices of put options are correspondingly depressed.

• Cooperation actions: While creating "noise" in the spot market, Jane Street's overseas FPI entities (such as Jane Street Singapore Pte. Ltd.) quietly act in the options market. They took advantage of the distorted option prices to buy a large number of put options at very low costs and sell call options at artificially high prices, thereby building a large short position. The SEBI report pointed out that the notional value (cash-equivalent) of their option positions was several times the amount of money they invested in the spot/futures market. For example, on January 17, the leverage ratio was as high as 7.3 times.

Phase II (Afternoon/Patch II): Reverse harvesting and realizing profits.

• Behavior: In the afternoon trading session, especially near the close, Jane Street's local entities would turn 180 degrees and systematically and aggressively sell all positions bought in the morning, sometimes even increasing their positions.

• Method: In contrast to the morning, the selling price is usually lower than the market LTP, actively "suppressing" the price of constituent stocks, causing the BANKNIFTY index to fall rapidly.

• Profit closed loop: The sharp drop in the index caused the value of the huge put options (Put) established in the morning to soar, and the value of the call options (Call) to return to zero. In the end, the huge profits it made in the options market far covered the certain losses caused by "buying high and selling low" in the spot/futures market. This model constitutes a perfect profit closed loop.

Strategy 2: "Extended Marking The Close"

This is another more direct manipulation technique, which is mainly concentrated in the last stage of the trading day, especially in the settlement window period of the option contract. 'Extended marking the close' refers to a manipulative trading behavior, that is, an entity places a large number of buy or sell orders at the last moment of the trading session with the intention of affecting the closing price of a security or index, thereby making a profit on its derivatives position. On certain trading days, Jane Street did not adopt a 24-hour "buy-sell" mode, but after 14:30 in the afternoon, when it held a large number of expiring option positions, it suddenly carried out large-scale one-way transactions (buy or sell) in the spot and futures markets to push the final settlement price of the index in a favorable direction. Key evidence and data support SEBI's allegations are not groundless, but are based on massive trading data and rigorous quantitative analysis.

• Size and Concentration

The report uses detailed tables (such as Table 7, 8, 16, 17) to show Jane Street's astonishing share of trading volume in a specific time window. For example, on the morning of January 17, 2024, its buying volume in the ICICIBANK spot market accounted for 23.33% of the total buyer volume in the entire market. This market dominance is the prerequisite for its ability to influence prices.

• Price Impact Analysis (LTP Impact Analysis)

This is a highlight in the SEBI report. The regulator not only analyzed the trading volume, but also used LTP impact analysis to determine the "intention" of its transactions. Analysis shows that in the pull-up phase, Jane Street's transactions had a huge positive price impact on the index; while in the suppression phase, it had a huge negative impact. This strongly refutes the possible excuse of "normal trading" or "providing liquidity", proving that its behavior has a clear purpose of "pushing up" or "suppressing" the market.

• Cross-entity coordination and regulatory evasion

SEBI clearly pointed out that Jane Street used its combination of Indian local entity (JSI Investments) and overseas FPI entities to cleverly circumvent the restriction that a single FPI cannot conduct intraday trading. The local entity is responsible for high-frequency intraday reversal transactions (buy and then sell) in the spot market, while the FPI entity holds and benefits from a large option position. This "left hand hitting the right hand" coordinated manipulation mode shows the premeditation and systematic nature of its behavior.

Data source: SEBI interim investigation report (Table 4). The chart clearly shows that Jane Street has made huge profits in the options market, while incurring significant losses in other markets (especially stock futures), which confirms the operational logic of "taking losses in exchange for greater profits" in its strategy.

Part II: The "Skynet" of Supervision - SEBI's Penalty Logic and Core Warning

Faced with such a complex and highly technical trading strategy of Jane Street, SEBI's penalty decision did not fall into an endless exploration of the "black box" of its algorithm, but went straight to the point, starting from the nature of its behavior and the damage to market fairness. The regulatory logic behind this is a strong warning to all technology-driven trading institutions, especially those involved in the virtual asset field.

The logo outside the headquarters building of the Securities and Exchange Board of India (SEBI)

1. SEBI's punishment logic: characterization from "behavior" rather than "results"

The core of SEBI's legal weapon is its "Prohibition of Fraudulent and Unfair Trade Practices Regulations" (PFUTP Regulations). Its punishment logic is not based on "Jane Street makes money", but on "Jane Street's way of making money is wrong."

The key qualitative evidence is as follows:

1. Creating false or misleading market appearances (Regulation 4(2)(a)): SEBI believes that Jane Street artificially created the rise and fall of the index through its large-scale and high-intensity buying and selling behavior, which sent false price signals to the market and misled the judgment of other participants (especially retail investors who rely on price signals to make decisions). This behavior itself constitutes a distortion of the real supply and demand relationship in the market.

2. Manipulating securities prices and benchmark prices (Regulation 4(2)(e)): The report clearly pointed out that Jane Street’s behavior was directly aimed at affecting the BANKNIFTY index, an important market benchmark price. All its operations in the spot and futures markets are aimed at moving this benchmark price in a direction that is favorable to its derivatives positions. This is considered a typical price manipulation.

3. Lack of independent economic rationality: This is the "winner" in SEBI's argument. The regulator pointed out that Jane Street's intraday high-buy and low-sell reversal transactions in its spot/futures markets will inevitably lead to losses from a single business perspective. Reported data shows that in 15 trading days of "intraday index manipulation", it has accumulated losses of 1.997 billion rupees in the spot/futures market. This behavior of "deliberate loss" proves that these transactions are not for investment or normal arbitrage, but as a "cost" or "tool" to serve the purpose of manipulating the options market to obtain greater profits.

2. Core warning: Technology is neutral, but those who use technology have a position

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

Today, when supervision is becoming increasingly refined and principled, pure technical and mathematical advantages may touch the red line of the law at any time if there is a lack of respect for market fairness and regulatory intentions.

• The boundary of technical advantage: Jane Street undoubtedly has the world's top algorithms, low-latency execution systems and excellent risk management capabilities. However, when this ability is used to systematically create information asymmetry and undermine the market's price discovery function, it is transformed from a "tool to improve efficiency" to a "weapon for manipulation." Technology itself is neutral, but its application method and intention determine the legitimacy of its behavior.

•  A new regulatory paradigm based on principles: Global regulators, including SEBI, SEC, etc., are increasingly evolving from a "rule-based" to a "principle-based" regulatory philosophy. This means that even if a complex trading strategy does not explicitly violate a specific rule, as long as its overall design and final effect violate the basic market principles of "fairness, justice, and transparency," it may be considered manipulation. Regulators will ask a fundamental question: "How does your behavior benefit the market, other than harming the interests of others to make yourself profitable?" If the answer is no, then the risk is extremely high.

3. "Arrogance" of ignoring warnings: a catalyst for severe punishment

SEBI specifically emphasized an aggravating circumstance in the report: In February 2025, the National Stock Exchange of India (NSE) had issued a clear warning letter to Jane Street in accordance with SEBI's instructions, requiring it to stop suspicious trading patterns. However, the investigation found that Jane Street continued to manipulate the NIFTY index in May.

This behavior was regarded by SEBI as a blatant contempt for regulatory authority and "not a good faith actor". This is not only one of the reasons why it was fined a huge amount, but also an important catalyst for SEBI to take the harsh interim measure of "banning market access". This is a lesson for all market participants: communication and commitments with regulators must be taken seriously, and any form of fluke and arrogance may lead to more severe consequences.

Part III: Under the avalanche, no snowflake is innocent-market impact and victim breadth analysis

The impact of the Aiying Jane Street case is far more than the fine and reputation damage of a company. It is like a boulder thrown into a calm lake, and the ripples it has caused have affected the entire quantitative trading ecosystem and redefined our understanding of "victims". The breadth and depth of its impact are worthy of deep thought by all market participants.

1. Direct impact on market ecology

• Liquidity paradox and declining market quality

In the short term, the ban on top market makers like Jane Street will undoubtedly have an impact on the liquidity of their active derivatives markets (such as BANKNIFTY options). The bid-ask spread may widen, and transaction costs will rise accordingly. As Nithin Kamath, CEO of Zerodha, a well-known Indian brokerage, pointed out, the top proprietary trading companies contribute nearly 50% of option trading volume, and their retreat may significantly affect market depth.

• Confidence crisis and industry chilling effect

This case has seriously shaken the market's trust in quantitative trading, especially high-frequency trading (HFT). The increased negative perception of the public and regulators may lead to the "stigmatization" of the entire industry. Other quantitative funds, especially foreign institutions, may become more cautious as a result of this case, reassess regulatory risks in emerging markets such as India, or actively shrink their business scale, forming a "chilling effect".

• The prelude to comprehensive tightening of regulation

The Chairman of SEBI has made it clear that it will strengthen monitoring of the derivatives market. This indicates that all quantitative institutions will face stricter algorithmic review, more transparent position reporting requirements and more frequent compliance inspections in the future. A more stringent regulatory era has arrived.

2. Victim spectrum analysis: chain reaction from retail investors to institutions

Traditional analysis often focuses on the victims as retail investors who are directly "harvested". However, in an interconnected market, the harm of manipulation is systemic.

• Direct victims: retail investors who are "harvested"

This is the most obvious group of victims. SEBI reports repeatedly mention that as many as 93% of retail investors in India lose money in F&O (futures and options) transactions. Jane Street's strategy takes advantage of the retail investor group's reliance on price signals and insufficient information processing capabilities. When the index is artificially raised, retail investors are lured into a long trap; when the index is artificially suppressed, their stop-loss orders aggravate the market's decline. They become the direct "counterparties" of Jane Street's huge profits, and have almost no ability to fight back under the dual disadvantages of information and funds.

• Indirect victims: other quantitative institutions misled by "contaminated" signals

This is a group of victims that is often overlooked but crucial. Jane Street and retail investors are not the only ones involved in the market game. Hundreds of other small and medium-sized quantitative institutions, whose trading models also rely on public market data - price, volume, order book depth, etc. - to make decisions. Their way of survival is to find tiny arbitrage opportunities through better models or faster execution in a fair and efficient market.

However, when "whales" like Jane Street use their overwhelming financial advantages to systematically "pollute" the price signals that are the cornerstone of the market, the rules of the entire game are changed. The models of other quantitative institutions receive distorted data and are artificially "directed" market conditions.

This will lead to a series of chain reactions:

• Strategy failure

Models based on trend tracking, mean reversion or statistical arbitrage may completely fail in the face of such artificially created violent reversals, resulting in wrong trades and losses.

• Risk model misjudgment

Risk management models (such as VaR) are calculated based on historical volatility. When market volatility is artificially amplified, these models may underestimate the real risk or trigger risk control instructions at the wrong time.

• Missed real opportunities

When the main driving force of the market comes from manipulation rather than fundamentals or real emotions, strategies aimed at discovering real value will have no way to start.

Therefore, Jane Street's behavior not only harvested retail investors, but also caused a "dimensionality reduction attack" on other professional institutions in the same track. They thought they were playing against the "market", but in fact they were playing against a "fake market" with a God's perspective. This breaks the simple perception of "quantitative involution, the strong will always be strong" and reveals how fragile the market's price discovery function is in the face of absolute power. From this perspective, all participants who rely on fair signals, regardless of their technical level, have become potential victims of this manipulation drama.

Part 4: A Mirror in the Crypto Field - Cross-Market Mapping of Jane Street Strategies

For virtual asset institutions, the Jane Street case is by no means a spectator's sit-by-the-side story. Its core manipulation logic is highly isomorphic to the "technical original sin" common in the Crypto market. Using this case as a mirror, we can clearly see the huge compliance risks hidden in the Crypto field.

1. Jane Street's layout and behavior in the Crypto field

Jane Street is one of the earliest and most important institutional players in the crypto world. Its behavior pattern is consistent with that in the traditional financial market: low-key, mysterious, but with great influence.

According to Aiying, Jane Street is not only a major cryptocurrency market maker in the world, but also an important liquidity provider for leading exchanges such as FTX and Binance. Recently, it has become an authorized participant (AP) of several Bitcoin spot ETFs such as BlackRock and Fidelity, playing a key role in bridging traditional finance and crypto assets. It is worth noting that after the tightening of the US regulatory environment in 2023, Jane Street reduced its cryptocurrency trading business in the United States, but remained active in other parts of the world. This shows that it is highly sensitive to regulatory risks and has the ability to flexibly adjust strategies globally. It can be concluded that Jane Street's quantitative models, technical architecture and risk management philosophy, which have been tempered in the traditional financial market, are also applied to its crypto asset transactions. Therefore, its manipulation techniques in the Indian market are of great reference value for understanding its potential behavior patterns in the Crypto world.

Compared with traditional financial markets, the manipulation methods in the crypto asset market are closely integrated with technical protocols, market structure and community ecology. The following cases cover multiple dimensions from DeFi to CEX, from algorithms to social media, revealing the diversity and complexity of its manipulation behaviors.

Case 1: Mango Markets Oracle Manipulation Case (DeFi)

Manipulation Methods: In October 2022, the manipulator Avraham Eisenberg took advantage of the structural loopholes of the Mango Markets protocol and significantly increased the value of its collateral by raising the price of its governance token MNGO on multiple platforms. Subsequently, he used this highly exaggerated collateral as a voucher to borrow and exhaust various mainstream crypto assets worth approximately US$110 million from the protocol treasury.

Market impact and legal consequences: This incident caused the Mango Markets protocol to go bankrupt instantly and user assets were frozen. Eisenberg later argued that his behavior was a "high-profit legal trading strategy" and challenged the boundary of "code is law". However, the US Department of Justice eventually arrested and convicted him on charges of commodity fraud and commodity manipulation. This case became the first landmark case to successfully prosecute DeFi market manipulation, establishing the applicability of traditional market manipulation regulations in the DeFi field.

Case 2: FTX/Alameda Research Internal Related Party Manipulation Case (CEX)

Manipulation techniques: There is systematic interest transfer and market manipulation between the FTX exchange and its affiliated trading company Alameda Research. Alameda used its special permissions at FTX (such as exemption from automatic liquidation) to embezzle customer deposits for high-risk investments. At the same time, the two parties worked together to manipulate the price of FTX's platform currency FTT and used it as false collateral to cover up Alameda's huge losses.

Market impact and legal consequences: The manipulation ultimately led to the collapse of the FTX empire, triggered a liquidity crisis that affected the entire industry, and investors lost billions of dollars. Founder Sam Bankman-Fried was convicted of multiple charges including securities fraud and wire fraud. This case reveals the extreme systemic risks that centralized platforms may generate when they lack external supervision and internal risk control.

Case 3: BitMEX Derivatives Market Manipulation Case (Derivatives)

Manipulation techniques: The U.S. Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN) accused BitMEX of operating illegally for a long time and failing to implement necessary anti-money laundering (AML) and know your customer (KYC) procedures. This created conditions for market manipulators (including its internal employees) to influence derivatives prices through means such as "spoofing" and "wash trading". Its unique "liquidation engine" has also been accused of exacerbating user losses during violent fluctuations.

Market impact and legal consequences: BitMEX's actions undermined the fairness of the derivatives market and harmed the interests of traders. In the end, BitMEX reached a settlement with regulators and paid a huge fine of $100 million, and its founders also admitted to violating the Bank Secrecy Act. This case marks the beginning of the tightening of regulators' supervision of crypto derivatives platforms.

Case 4: Hydrogen Technology Algorithmic Manipulation Case (Algorithmic)

Manipulation techniques: The U.S. Securities and Exchange Commission (SEC) accused Hydrogen Technology and its market makers of large-scale "wash trading" and "spoofing" operations on its token HYDRO between 2018 and 2019 through specially designed trading robots. These algorithmic transactions created more than $300 million in false trading volume, accounting for the vast majority of the token's total global trading volume, and were intended to create the illusion of market activity to attract investors.

Market impact and legal consequences: The manipulation misled the market, artificially raised the price of the token, and caused ordinary investors to suffer losses after the price collapsed. The SEC ultimately ruled that it violated the anti-fraud and market manipulation provisions of the federal securities laws. This case is a typical example of regulators using data analysis technology to successfully identify and combat algorithm-driven manipulation.

Case 5: Social Media Influence Manipulation Case

Manipulation Methods: This type of manipulation does not rely on complex technology, but rather uses the influence of social media (such as X, Telegram, Discord). The typical model is "pump and dump", that is, the manipulation group pre-buys a certain low-liquidity token at a low price, and then releases false positive news through online celebrities (KOL) or community shouting orders, attracting a large number of retail investors to buy at high prices, and finally sells at high prices for profit.

Market Impact and Legal Consequences: This behavior caused the target token price to soar and plummet in a short period of time, and the vast majority of retail investors who followed the trend became "takers". The SEC has filed lawsuits in many such cases, accusing the relevant online celebrities and project parties of promoting security tokens without disclosing their remuneration, which constitutes fraud. This shows that the scope of supervision has extended to the level of marketing and community public opinion guidance.

Cross-market comparative analysis of manipulation logic

After analyzing the above specific cases, we can make a deeper comparison between the Jane Street case and the manipulation logic of the crypto world. Although the market carriers and technical tools are different, the underlying manipulation philosophy - using information, capital or rule advantages to create unfairness - is the same.

Aiying Conclusion: The mantis stalks the cicada, who is the oriole?

The Jane Street case and a series of precedents in the crypto world together paint a vivid picture of the financial market where "the mantis stalks the cicada, while the oriole waits behind." However, in this game, who is the mantis and who is the oriole?

For many retail investors and small and medium-sized institutions who are immersed in the ups and downs of the K-line chart and chasing short-term hot spots, they are like the "mantis" who focuses on the prey in front of them (market Alpha). They often do not realize that every tiny pattern of their trading behavior and every emotional pursuit of rising and falling may be observed and exploited by more powerful predators, such as top quantitative institutions such as Jane Street. These "orioles", with their financial, technical and information advantages, are not playing against the "market", but are systematically "hunting" for predictable behavior patterns.

This reveals the first cruel truth of market game: your opponent may not be the "market" or other retail investors as you imagine, but a highly rational professional hunter with a God's perspective. Losses are often not due to bad luck, but because the position in the food chain has long been determined. However, the story does not end there. When the "yellow bird" thinks it is at the top of the food chain and is intoxicated with the success of hunting, it is also exposed to the vision of the real "hunter" - the regulator. The ticket of the Jane Street case just shows that even the most powerful "yellow bird" will become the target of hunting once its behavior crosses the red line of market fairness and destroys the foundation of the entire ecology.

Therefore, for all market participants, the real wisdom of survival lies in two levels: first, to recognize the real opponent, restrain the "praying mantis" instinct driven by short-term profits, and understand one's position in a jungle surrounded by "yellow birds". Secondly, we must have real awe for market rules. Rational and strategic thinking should not only be used to design more sophisticated hunting strategies, but also to understand the boundaries and bottom lines of the entire ecosystem. Any attempt to obtain excess returns by damaging the fairness of the system may lay the groundwork for future overturns.

In this never-ending game, the ultimate winner is not the most ferocious "yellow bird" or the most diligent "praying mantis", but those wise participants who can see through the entire food chain, know how to dance with the rules, and always stay aware of the risks.