To The Moon

$HDFC Bank(HDB)$ $ICICI Bank(IBN)$ $First Trust India NIFTY 50 Equal Weight ETF(NFTY)$ $ETFS Reliance India Nifty 50 ETF(NDIA.AU)$ 📉🇮🇳🚨💼 The ₹48.4B Expiry Trap: SEBI Bans Jane Street, Bank Nifty’s Volatility Playbook Exposed 💼🇮🇳📉📊💥🚨

“From Amsterdam to Hong Kong and New York, it had become the talk of the town: a unique derivatives strategy fabulously profitable in India. Those trades now are the very reason why Jane Street has been temporarily banned from India’s securities market.”

🖇️📰 Bloomberg News, 04Jul25

A secret expiry-day options strategy just triggered one of SEBI’s most aggressive market actions in years. The fallout could reshape the dynamics of the world’s busiest equity-derivatives market and send shockwaves through global high-frequency trading desks.

SEBI has barred Jane Street from India’s securities markets and frozen ₹48.4 billion ($570 million) in what it called “unlawful gains.” This was no small side hustle. Bloomberg reports Jane Street generated ₹432.9 billion in profit from index options between 01Jan23 and 31Mar25, offsetting ₹76.87 billion in losses across stock futures, index futures, and cash markets.

SEBI alleges the firm orchestrated a pattern of morning buy-ups in Bank Nifty component stocks and futures, including heavyweights like $HDFCBANK, $ICICIBANK, and $KOTAKBANK, to lift the index, then sold off the same positions toward market close. This downward pressure allegedly allowed Jane Street to profit from short-dated put options it had built earlier in the session. The regulator concluded it was a “well-planned and sinister scheme to manipulate cash and futures markets” and deceive small investors into trading at unfavourable prices.

In SEBI’s words, Jane Street “is not a good faith actor that can be, or deserves to be, trusted.” The firm disputes the findings and has indicated it will engage with the regulator, with a 21-day window to appeal.

This isn’t just about one firm. The implications run deep.

India commands the largest global volume of equity-derivatives contracts traded. The Bank Nifty weekly expiry, in particular, is one of the most active retail-driven instruments on the National Stock Exchange ($NSE). The sudden removal of Jane Street, one of the market’s deepest liquidity providers, could trigger wider bid-ask spreads, especially around expiry, and elevate implied volatility.

Retail brokers like Zerodha and AngelOne saw a 21% spike in open interest from individual accounts in the hours following the announcement, suggesting that volatility-chasing is already underway. Meanwhile, firms like Citadel Securities, Optiver, and IMC Trading are reportedly reviewing their India strategies. According to SEBI, out of 11,200 registered foreign portfolio investors, around 280 are engaged in algorithmic trading. That cohort is now likely recalibrating everything from delta exposure to regulatory audit trails.

From a price-action perspective, $BANKNIFTY hovered around ₹56,800 mid-session on 04Jul25, with a muted but notable pullback to ₹56,730 shortly after the SEBI order. Implied volatility jumped from 13.8% to 15.6%, and the put-call ratio flipped from 0.78 to 1.05, signalling a directional hedge toward the downside. Key support rests at ₹56,300, with swing resistance near ₹57,600. Any further widening of spreads or mispricing around expiry will be closely watched for signs of manipulation retreat.

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Late-day drop in $NIFTY on 03Jul25 as SEBI’s order hits the tape. The sharp reversal after 14:00 mirrors expiry-day distortions SEBI accuses Jane Street of exploiting. Volatility jumped and retail volumes surged.

This late-day price action in $NIFTY reflects expiry-day volatility patterns that SEBI now views as deliberate rather than random. Traders watching $NFTY, the global ETF tracking Nifty 50, will be paying close attention to how these moves bleed into offshore sentiment.

This isn’t the first time SEBI has cracked down on institutional flows. In 2018, UBS faced restrictions for algo misuse. However, the scale of Jane Street’s operation and its ties to expiry-day distortions gives this event far more structural weight.

It could also push NSE and index providers to re-evaluate the construction of Bank Nifty. With only 12 stocks and several with low float, the index is highly sensitive to coordinated flows. This setup, combined with the hedging incentives around weekly options, may be inviting too much strategic gaming.

Looking ahead, three catalysts matter most.

First, whether Jane Street obtains a temporary stay from India’s Securities Appellate Tribunal and resumes trading. Second, whether Bank Nifty expiry price action shows clearer settlement patterns in the absence of aggressive flows. Third, whether other firms with similar expiry-day tactics are next to face scrutiny. Bloomberg reports that other foreign funds are already under investigation.

From a strategy lens, volatility traders may find opportunity in underpriced IV as the dust settles. Directional bulls could look to accumulate on dips near the ₹56,300 level, but caution is warranted until institutional liquidity returns. Watch SGX Nifty and $NFTY volume for signs of offshore slippage.

This moment is more than a headline. For India’s booming options market, the message is clear. The days of unchecked expiry-day advantage may be over. For global HFTs, it is a reminder that regulatory alpha is shrinking and risk management now includes staying out of the penalty box.

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