Expiry Day and the Governance of Algorithmic Trading: The Jane Street Episode

On July 3, 2025, the Securities and Exchange Board of India (SEBI) issued a 105-page interim order against global proprietary trading firm Jane Street Group, accusing it of orchestrating a sophisticated expiry-day trading strategy designed to manipulate the Bank Nifty index. SEBI found that on 18 derivative expiry days between January 2023 and March 2025, Jane Street-linked entities executed trades that distorted index levels to benefit their substantial options positions. The regulator directed Jane Street to deposit ₹4,843.57 crore, representing alleged unlawful gains, into an escrow account and barred it from trading in Indian securities markets pending further proceedings. Jane Street complied with the interim order by depositing the full amount on July 14, 2025, while reserving its right to contest the findings. As such, on July 21, 2025, SEBI announced that certain restrictions, including bans on trading, account freezes, and asset transfers, would cease to apply, provided ongoing compliance. A hearing on final directions is scheduled for August 2025.

Algorithmic Execution Meets Expiry-Day Strategy

The alleged manipulation involved a dual-phase trading pattern. In the first half of expiry day (Patch I: 9:15–11:46 AM), Jane Street reportedly executed large-volume buy orders in Bank Nifty component stocks and their corresponding stock futures. These trades – at times constituting over 20% of market-wide volumes in securities such as Kotak Bank, SBI, and Axis Bank–were often placed above the last traded price, thereby elevating the prices of both individual stocks and the index. Simultaneously, Jane Street built large net short positions in index options by selling calls and buying puts, essentially betting on a later decline in the index.

In the second half of the trading session (Patch II: 11:49 AM onwards), Jane Street unwound its long stock and futures positions by selling aggressively, thereby exerting downward pressure on the index. This sell-off coincided with the close of trading, resulting in a drop in the Bank Nifty and magnifying the profits from its bearish options exposure. The regulator alleged that this strategy was employed systematically despite cautionary communications from the National Stock Exchange in February 2025.

Corporate Governance and Market Conduct: A Fine Line

The case raises critical questions of governance–not just within Jane Street, but across the broader architecture of algorithmic trading in capital markets. SEBI’s findings indicate that Jane Street’s trading alone accounted for the full extent of positive index movement in the morning sessions on several expiry days, with the rest of the market exerting net downward pressure. The regulator concluded that this was not incidental to legitimate hedging or arbitrage, but part of a designed mechanism to influence settlement prices.

For market participants and regulators alike, the Jane Street matter blurs the line between aggressive arbitrage and manipulative conduct. The enforcement action brings to the fore an increasingly urgent question: should algorithmic strategies that rely on concentrated expiry-day trades be subject to the same governance expectations as traditional market conduct rules? From a corporate governance standpoint, the case signals that algorithmic opacity is no defence. If the effect of a strategy distorts fair price discovery–particularly around sensitive benchmark events–it may well fall within the domain of manipulative conduct, regardless of intent or economic logic.

Comparative Enforcement: Global Lessons

Globally, comparisons are inevitable. In the U.S., the Commodity Futures Trading Commission’s (CFTC) 2019 enforcement against Tower Research Capital for futures spoofing–resulting in a $67 million settlement–similarly involved high frequency trading (HFT) strategies that manipulated price discovery in technically legal but functionally deceptive ways. The LIBOR rigging scandal likewise saw traders manipulate benchmarks to advantage their derivatives positions, although those cases involved submissions rather than market execution. In contrast, Jane Street’s case reflects a live-market manipulation of index expiry via real-time trading behaviour.

The common thread in these cases is the regulatory emphasis on effect over form. Financial sophistication cannot shield firms from accountability when market integrity is compromised. This aligns with evolving views on corporate governance in financial firms: robust oversight must extend to automated systems, algorithmic design, and the governance of strategy deployment–especially in high-volume, high-impact scenarios like expiry days.

Structural Reforms and Forward-Looking Governance

The fallout from the Jane Street case is already influencing regulatory discourse. Proposals gaining ground include algorithmic strategy sandboxing (i.e., the process of testing trading algorithms in a controlled, simulated environment that mimics live market conditions, without the risk of causing real-world disruptions) and pre-clearance mechanisms, allowing exchanges and regulators to evaluate potential expiry-impacting algorithms before deployment. Such initiatives align with global best practices on governance of technological risk in financial systems.

Further, SEBI may revisit disclosure norms for foreign portfolio investors (FPIs). Jane Street operated through multiple affiliated FPIs, raising questions about regulatory arbitrage through fragmented trading identities. A possible solution is consolidated reporting and beneficial ownership traceability across all entities under common control–measures that would improve transparency and hold parent firms accountable for sub-account conduct.

On the settlement side, the use of VWAP (Volume Weighted Average Price) for index expiry could also be recalibrated. Measures such as broadening the settlement window or imposing participation caps during expiry hours are being discussed. Enhanced audit trail obligations–such as version-controlled algorithmic code, decision logic, and real-time logs–could also be mandated to support post-trade surveillance.

Conclusion: Governance in the Age of Algorithmic Influence

Whether Jane Street’s legal challenge succeeds or not, the July 2025 interim order is a watershed moment in India’s approach to market conduct enforcement. For regulators worldwide, particularly in emerging markets with shallow underlying volumes but complex derivatives activity, the message is clear: advanced trading strategies are not exempt from governance norms. The case also reiterates that in modern markets, governance must extend to the design, deployment, and disclosure of algorithmic decision-making systems–particularly when such systems can materially shape price discovery during benchmark events like index expiries.

__________

Vishrut Kansal is a Principal Associate at Shardul Amarchand Mangaldas & Co

The ECGI does not, consistent with its constitutional purpose, have a view or opinion. If you wish to respond to this article, you can submit a blog article or 'letter to the editor' by clicking here.