On July 3, 2025, India’s market regulator Sebi barred the American firm Jane Street from trading in the Indian stock market, accusing it of profiting from pump-and-dump operations involving shares and their derivatives.
The order said that Jane Street made a profit of Rs 36,502 crore from January 2023 to March 2025. Of course, not all of this was because of the pumping and dumping that Jane Street stands accused of. 

On July 7, 2025, Sebi published a study, in which it said that in 2024-25, 91 out of 100 individual traders trading in derivatives of shares, lost money. Earlier Sebi had published similar data for 2023-24 as well. So, this is not a one-off and implies that almost all retail investors lose money when they try trading in derivatives of shares.

This piece tries answering two questions: 

1) What did Jane Street actually do leading to Sebi barring the firm?
2) How are retail investors linked to this?

Also, let me put the disclaimer first: If you are looking for a technical explanation of the whole thing, this isn’t the piece to read. It’s best to stop now. In fact, for that you should be reading Sebi’s interim order which discusses stuff in great detail or this superb piece by Matt Levine of Bloomberg who tries to make sense of Sebi’s order.

I will try keeping things as simple as possible, in fact, even simplistic for that matter, by leaving out as many details as possible, given that understanding derivatives can get quite complicated.

The terms
A stock market is a digital marketplace where among other things, shares of companies can be bought and sold. This specific part of the stock market is referred to as the cash market.
So, when you buy a share in the cash market, you actually get that share. It lands up in your demat account. You own it. When you sell a share, it moves from your demat account to the demat account of the individual or the firm buying it.
But the cash market is not the only part of the stock market. There are derivatives as well. Futures and options (F&O) are the most common of the lot. The F&O derive their value from the price of shares. Investors who trade in F&O don’t own the shares. 

What did Jane Street do?
In very basic terms what Jane Street and its different entities did was as follows:
1) They bought shares in the cash market and drove up their prices. 

2) Along with this, they also bought options on these shares, from which they could profit if the prices of the shares fell. 

3) The stock market operates from 9 am to 3.30 pm. As the closing time of the stock market came nearer, Jane Street sold the shares that had been bought. Given that there weren’t enough buyers in the stock market at that point of time, the prices of these shares fell.
4) Once the prices fell, the options they had bought became tremendously profitable. The money they ended up making from these options was much more than the money they possibly lost by selling the shares they had bought earlier in the day. This was their basic modus operandi. Or what has been referred to as pump-and-dump. 

5) Now, how do retail investors come into this? Remember any market operates because there are two parties. The seller and the buyer. When Jane Street was buying options, someone had to sell these options. And it seems that they were primarily being sold by retail investors.
So, when share prices fell and the options became super profitable for Jane Street, what that basically meant was that the retail investors ended up paying Jane Street. They had to bear the cost of Jane Street’s profits. 

And that at some level explains why 91 out of 100 retail guys investors lose money while trading derivatives of shares. Sebi’s study puts these losses in 2024-25 at Rs 1,05,603 crore, up 41 percent from Rs 74,812 crore in 2023-24. Of course, not all these losses were profits for Jane Street. At an extremely simplistic level, this is what seems to have happened. 

So, two questions crop up now:

1) Did Jane Street manipulate the stock market to make huge profits? The answer to that question is possibly long, complex and convoluted. Given that, I will not go there.
2) But what interests me more is: How did we get here?

Retail investors and derivatives
Why have so many Indian retail investors ended up in the derivatives market? Let me give you some data from Sebi’s interim order. Jane Street bought 12 banking stocks that constitute the Bank Nifty Index. It also bought Bank Nifty options, from which it profited when the prices of these 12 banking stocks fell.
On January 17, 2024, the relative size of the Bank Nifty options market was 353 times the cash market of the 12 banking stocks that make up this index. What does this mean? It means that Jane Street could buy a lot of options from which it could profit when the prices of the banking stocks fell. 

And this was primarily possible because there were many investors out there – possibly retail – who were ready to sell these options. Without them, Jane street wouldn’t have been able to buy as many options as it did. 

So, this made it possible for Jane Street to first buy banking stocks, drive up their prices, then sell them, drive down their prices, and in the process, profit from the options they had bought. If so many investors weren’t ready to sell options from which Jane Street could profit, this trade would never work, and the firm wouldn’t have made the kind of money that it is supposed to have made.

The reasons
1) The gamification of finance is a big reason for so many retail investors punting on derivatives of shares. Earlier if one had to buy shares and their derivatives, one had to log on to a computer. And everyone did not have one.
Now, all it needs is for an individual to log on to an app on a mobile phone, which is not limited by where one is at any given point of time. It can be done anytime anywhere as long as one has a smartphone and an internet connection.
It’s just like playing a game. Like right now, I am writing this piece on a laptop with my smartphone lying next to me. I can pick it up and log on to my New York Times account and play the Spelling Bee and I can also log on to my demat account and trade. It’s as easy as that.
2) The interfaces of these apps are very clean in comparison to the past. Even newbies can take on to trading very quickly, something which wasn’t possible earlier.
3) Along with the gamification of finance, it has also become very easy to get loans without leaving the comfort of one’s home. These loans can then be used to trade in the stock market. 

4) In the last few years, many stock brokerages got into affiliate deals with financial influencers. These influencers were financially compensated for telling their followers that making money from trading in derivatives of stocks was very very easy. This had a huge role in driving up volumes in the derivatives market and in the process making Jane Street’s trading strategy possible.
5) The stock exchanges also incentivised this behaviour in various ways. 

In the last one year, Sebi has tried to crack down on this, by trying to disincentivise retail investors from trading in derivatives. The regulator’s study referred to earlier points out that the number of unique individual investors trading in derivatives of shares came down 20 percent in 2024-25 in comparison to 2023-24, but was still up 24 percent from 2022-23. 

Now, I have a conspiracy theory: At some level risk taking is also an addiction. So, I think it’s possible that such traders are now moving to online gambling or sports betting, both of which are heavily advertised these days. Of course, do remember I have no proof for this and it’s just a theory I am offering.
To conclude, without retail investors Jane Street’s investment strategy wouldn’t have worked. At the same time, if Jane Street hadn’t found the retail investors someone else would have. That’s the real story.
A combination of seductive apps, easy credit, influencer noise and regulatory gaps led them into a minefield masked as a marketplace. The odds were never in their favour. And while Sebi is trying to fix the system, the addiction to risk may have already found newer outlets – which might be equally dangerous.
Good investing should be simple, long-term, regular and boring. But who wants boring? There’s just one life. And it has to be lived. That’s the long and the short of it. 

Vivek Kaul is an economic commentator and writer.

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