Will Retail Investors Win Back Losses from Market Manipulation?
India’s retail investors, the lifeblood of the world’s largest equity derivatives market, are filled with hope after the Securities and Exchange Board of India (SEBI) launched a bold crackdown on Jane Street, a U.S.-based trading firm accused of rigging the Bank Nifty index.SEBI’s July 3, 2025, interim order banned Jane Street and seized ₹4,843 crore in alleged illicit profits, igniting optimism that the millions of traders who lost ₹1.05 lakh crore in FY25 could see compensation. But Jane Street may not be the only culprit—other firms could be exploiting similar tactics, and questions linger about why SEBI’s technology hasn’t caught these threats in real time.
Jane Street’s Alleged Schemes: How Retail Investors Got BurnedSEBI’s 15-month investigation, launched in April 2024, accuses Jane Street of a cunning “pump and dump” scheme targeting Bank Nifty index options on weekly expiry days. The firm allegedly inflated the index with massive stock and futures purchases, luring retail traders into bullish bets, then crashed prices to profit from short options positions. Two critical days highlight the impact:
- January 17, 2024: Jane Street traded ₹4,370 crore in stocks and futures to spike the Bank Nifty index, holding ₹32,115 crore in bearish options. When it dumped its holdings, the index plummeted, netting the firm ₹734.93 crore in a single day while retail traders suffered heavy losses.
- May 15, 2025: Similar expiry-day tactics helped Jane Street amass ₹4,843 crore in unlawful gains across 21 days, leaving retail investors reeling from artificial volatility.
These schemes fueled retail losses in a market where 93% of individual traders lose money, with FY25 losses soaring to ₹1.05 lakh crore, up 41% from ₹75,000 crore in FY24. Posts on X reflect both frustration and hope, with investors urging SEBI to deliver refunds and root out other manipulators.Are Other Firms Rigging the Game?Jane Street’s case has sparked suspicion about other players in India’s derivatives market, which handles 60% of global equity derivative volumes. In February 2025, fund managers flagged suspicious trading patterns, like abnormal Sensex call price movements on February 1 and 4, 2025, hinting at coordinated manipulation by other firms. While SEBI’s probe found no concrete evidence beyond Jane Street, the investigation continues, with speculation about global trading giants like Citadel Securities, IMC Trading, Millennium, or Optiver, which are expanding in India. These firms haven’t been directly implicated, but their HFT expertise raises concerns.Other cases point to broader risks. In June 2025, SEBI targeted Sanjiv Bhasin and 11 associates for a ₹11.37 crore stock manipulation scheme using televised tips to front-run trades. A 2025 Ahmedabad-based pump-and-dump scam involving defunct companies defrauded 4,000 investors, showing manipulation extends beyond HFT. On X, investors speculate that domestic brokerages or funds with access to large order flows could also be gaming derivatives markets, though no specific names have surfaced. SEBI’s ongoing probe offers hope that any culprits will face scrutiny.Can Retail Investors Reclaim Their Losses?Retail traders are pinning their hopes on SEBI’s seizure of ₹4,843 crore from Jane Street to recover losses from manipulated days like January 17, 2024, and May 15, 2025. The outlook is promising, though challenges remain:
- A Game-Changing Restitution Fund: SEBI’s impounded ₹4,843 crore could seed a historic restitution fund for affected investors. By analyzing trading data from the 21 expiry days, SEBI could identify impacted traders and estimate losses tied to Jane Street’s schemes, offering a lifeline to retail investors.
- Tech-Powered Hope: SEBI’s data analytics, which uncovered Jane Street’s trades, could pinpoint affected accounts. With public pressure from X and leaders like Rahul Gandhi, SEBI has incentive to prioritize compensation, potentially setting a global precedent.
- Hurdles to Clear: Linking losses directly to manipulation is complex, as market volatility and trading choices also play roles. SEBI’s history of diverting disgorged funds to the Investor Protection and Education Fund (IPEF) could redirect the ₹4,843 crore, but growing calls for direct refunds may shift this trend.
- Legal Battles Ahead: Jane Street calls SEBI’s accusations “fundamentally mistaken,” claiming its trades were legitimate “index arbitrage” and appealing via the Securities Appellate Tribunal. While this could delay refunds, SEBI’s robust evidence keeps investor hopes alive.
Is SEBI Up to the Task? The Detection DilemmaWhy Can’t SEBI Catch Manipulators in Real Time?SEBI’s crackdown on Jane Street shows it’s serious about protecting retail investors, but its ability to detect manipulation in real time has gaps, leaving traders vulnerable. Here’s a look at SEBI’s strengths, weaknesses, and why advanced detection software is still a work in progress:
SEBI’s Strengths: SEBI has upgraded its surveillance, using real-time trade monitoring and data
