US hedge fund Jane Street Group allegedly manipulated India’s benchmark Nifty 50 index at the peak of ‘Operation Sindoor’ by taking heavily bullish positions in the last 45 minutes of trading on 8 May.
India launched targeted missile strikes on Pakistan and Pakistan-occupied Kashmir in the early hours of 7 May in retaliation for the Pahalgam terror attack.
On 8 May, as the India-Pakistan conflict escalated, the Nifty fell just 0.6% to 24,274 points as a result of Jane Street Group’s actions, show the Securities and Exchange Board of India’s findings in its interim order barring the US proprietary trading firm from Indian stock markets for alleged market manipulation.
That Thursday, 8 May, was the expiry day of Nifty’s weekly options.
Sebi’s investigation into JS Group’s actions in India between August 2023 and May 2025 reveals the trader took huge bullish or bearish Bank Nifty and Nifty option positions on weekly expiry days on 21 instances.
JS Group first initiated heavy positions on Bank Nifty and Nifty cash and stock futures segments to allegedly mislead and entice market players with the sole aim of making hefty profits on the options positions, per Sebi.
Sebi requires foreign portfolio investors to settle trades in cash market shares rather than squaring off such trades intraday. Jane Street Group worked around this rule by opening a proprietary trading firm, JSI Private Investments Ltd, in India to square off cash trades intraday.
Key Takeaways
- India launched air strikes on terror camps in Pakistan and PoK on 7 May in retaliation for the Pahalgam terror attack in April.
- On 8 May—the weekly expiry day for Nifty options, which is highly sensitive for market participants and derivative positions—the Nifty 50 fell 1.1% from its previous close to an intraday low of 24,150.2 points.
- Jane Street took advantage of the pessimism in India’s stock market to build up options positions, buying cheap call options and selling costlier put options.
- However, in the last 45 minutes of trading on 8 May, Jane Street took large bullish bets by buying huge quantities of Nifty index and stock futures, artificially propping up the Nifty, which closed at 24,274 (down only 0.6% and off its lows).
- This happened because Jane Street’s aggressive buying of futures had increased the delta (sensitivity to underlying price moves) of the call options it had earlier purchased by propping up the Nifty cash index. The spike in delta amplified the gains on the calls, while the losses on sold puts were limited due to weak sentiment.
- Despite the Nifty ending lower on 8 May, JS Group made ₹3.1 crore in net gains on index options that day.
- JS Group’s gain came from the sharp jump in call option value caused by late-session futures buying, which propped up the Nifty from its lows.
JS Group’s strategy
JS Group followed two key strategies in India.
One strategy was to take trades in the cash and futures segments contrary to the market direction to influence option prices in its favour. For instance, if the markets were down, JS Group would buy huge quantities of index stocks in cash and futures, which would increase the price of call options while decreasing the price of put options.
While a call option mirrors the markets—climbing when the markets rise and declining when the markets fall—a put option does the opposite—climbing when the markets fall and declining when the markets rise.
In other words, the seller of a call option is bearish while a buyer is bullish; and the seller of a put option is bullish while a buyer is bearish.
JS Group would then sell the costlier call options after supporting the index from its lows and buy cheaper put options after propping up the index through its buying of index stocks and futures. In the second leg, the US trader would then reverse its bullish index cash and futures bets taken in the first leg at a loss.
Following this, JS Group would sell huge quantities of index cash and futures positions during the second leg, causing the value of the sold calls to fall and those of the purchased puts to rise, making outsized gains in the bargain.
The firm’s losses in the index and stock cash and futures segments would be a fraction of the options gain. For instance, on 17 January 2024, it made a profit of ₹735 crore in index options while making a loss of ₹62 crore in index stocks and futures and cash segments, per Sebi’s findings.
JS Group’s second strategy hinged on Nifty on three occasions, including during the India-Pakistan conflict, when it bought huge quantities of call options on expiry day and sold similar quantities of put options when the Nifty was down.
Employing these two strategies over 21 days, JS Group made a total ₹4,844 crore, which Sebi has sought to impound.
Fishing in troubled waters
The Nifty on 8 May reached a low of 24,150.2 points, down 1.1% from the previous close of 24,414. While this happened, Jane Street Group purchased huge quantities of cheap Nifty call options and sold similar quantities of costlier Nifty put options.
Then towards the last 45 minutes of trade, JS Group purchased Nifty index and stock futures in huge quantities to prop up the index, which it succeeded in doing as the Nifty recovered from its day’s low of 24150.2 to close at 24,274 points on 8 May.
As Nifty recovered, the purchased call option prices rose much more than the sold put option prices, enabling JS Group to make a net gain of ₹3.1 crore on the index options despite the market falling.
One of the key reasons for the profit despite a lower closing was the rise in call options’ delta due to the heavy buying of Nifty index and stock futures amid the largely bearish market sentiment that day.
Delta, one of five parameters to price an options contract, refers to a change in the option price for every point change in the underlying index or stock price. This means an option with a delta of 0.1 moves by 10 points if the Nifty rises or falls by 100 points.
JS Group’s intensive buying of Nifty index and stock futures in the last 45 minutes of trading meant that deltas of call options purchased earlier jumped sharply by closing, enabling the US trading firm to gain on options despite the negative market close.
As futures prices move in tandem with spot prices, a sudden gain in futures—as seen in the last 45 minutes of trading on 8 May—creates an arbitrage opportunity between the Nifty cash and futures. Traders exploit this by buying Nifty cash stocks and simultaneously selling Nifty futures.
This arbitrage opportunity was created by JS Group’s buying of index and stock futures during the last 45 minutes of trading, supporting the Nifty from its lows and enabling the Nifty calls to rise.
The delta factor
Sebi’s investigation found that JS Group’s delta position on 8 May rose from ₹23,532 crore to ₹67,619 crore, implying that the rise in call options purchased earlier was because of the heavy buying of index and stock futures in the last 45 minutes of trading.
“Supporting the market from the lows through the manipulative strategy of buying index and stock futures, JS increased the moneyness of the call options purchased earlier despite the tense war-like situation,” said Mayank Bansal, president of a UAE-based hedge fund that has been active in India’s derivatives market.
“The manipulation was underscored by heavy purchase of the Nifty futures and nifty stock futures in the last 45 minutes, which had the impact of increasing the delta of the call options by a whopping ₹43,087.84 crore. Normally, the sold puts would have also ended in profit, but because of the negative market sentiment that didn’t happen,” Bansal explained.
Rajesh Palviya, senior vice president, derivatives and technicals, at Axis Securities, agreed. “(JS Group’s) last-hour action of buying huge quantities of Nifty and stock futures contracts supported the index and increased the delta of their long options, enabling them to gain despite a weak market,” he said.
Other market experts said the disproportionately high weights of the top constituents of an index make indices prone to manipulation.
For instance, on Bank Nifty, the top three out of 12 banking stocks—HDFC Bank Ltd, ICICI Bank Ltd, and State Bank of India—had a weight of 62.12% as of end-June. “By moving three stocks alone in futures and cash segments, one can influence the movement of the Bank Nifty index significantly,” said a trader.
To correct the skew, Sebi has laid out that effective 3 November, non-benchmark indices such as Bank Nifty or BSE’s Bankex must have a minimum of 14 constituents with the weight of the largest constituent capped at 20% and the combined weight of the top three stocks not exceeding 45%.