Daybreak - The mystery fund that played God and wreaked havoc on the stock market

Episode Date: January 1, 2026

This episode revisits one of The Ken's most consequential stories from 2025. When journalist Anand Kalyanaramn started investigating unusual patterns in India's options market, he uncovered alleged manipulation on a massive scale. Someone was controlling market movements to guarantee profits—making billions while regular traders lost everything. SEBI identified Jane Street as the culprit; and the firm is appealing the allegation. Today, Anand explains how the alleged scheme worked, why India was vulnerable, and what this landmark case means for the future of fair markets.*The host mistakenly says that SEBI began investigating Jane Street in 2025. While the interim order was issued in July 2025, the investigation itself began in 2024.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. There are some theories that compare investing, especially in financial markets, to alchemy.

You know, the ancient belief that you could scientifically turn lead or other less valuable metals into gold. It makes sense because the whole point of investing is to multiply value exponentially. Now, we know alchemy doesn't work in reality, but we know that investing does. And we know it's a process that lies somewhere between scientific assurance and a game of chance. There's a logic behind it, but sometimes it works and sometimes it doesn't. And sometimes for very specific entities, it works really. really, really well.

So well that it defies the logic of both the markets and even pure good luck. Early this year in January, my colleague at the Ken, Anand Kalyana Raman, broke the story on a mystery manipulator in the options market. This mystery fund was making billions while retail traders were steadily losing money. It was an event that had huge consequences. And Sebi, India's market regulator, launched an investigation that still good. going on. So today, we wanted to highlight one of the most important stories that was published at the Ken in 2025. And of course, I had to get a perspective from Anand, who has been following

every development in the story since it broke. In January, Anand published the first story. It was titled, The Mystery Fund Playing God and Wrecking Havoc on the Indian Options Market. Six months later, in June, he named the fund that was suspected to be behind the minister. for the first time. So we first broke the story in January in this year, where we wrote about a master manipulator in the Indian options market. And then we followed this up with the story in June, where we pointed the needle of suspicion at Jane Street.

And that got vindicated in July when Sebi passed this order against Jane Street. basically ordering it to deposit 4,800 crore in which said that it had made illegally in the options market and also stopped it from trading. Now, Jane Street is a private hedge fund based in the US. They'd been posting sky high profits for years, which stood out because they weren't exactly a legacy firm like, say, Goldman Sachs. But in just a couple of decades, it started trading at a very similar level. Especially in India, Jane Street was doing amazingly well. The hedge fund reportedly made more than $2 billion in profits in just 2024. In other markets, it wasn't anywhere close to that number.

Seby began investigating Jane Street in 2025. Jane Street has denied these allegations and argues that its activities were just regular arbitrage, which we'll get into in a bit. First, let's see what the manipulation exactly was. Here's where things get a little technical. But stay with me and Anand while we explain it in simpler terms. Let me explain what options trading is. It's basically when you buy betting contracts on where the market will be at a future date.

You pay a small fee called a premium and if your bet is right, you win money. If you're not, you lose the premium you paid. Good. So with that out of the way, I let Anand explain what the case was over here. Right. So an options market is a derivatives market. It essentially actually derives its value from the underlying cash market. So ideally, the movements in the cash market ought to influence the movements in the options market. But in this case, actually what was happening is that the manipulator was first taking the position. positions in the options market and then he was moving the positions in the cash market to benefit from his positions in the options market.

So it was flipped essentially, which was the manipulation which was happening. So the alleged manipulator's plan was deceptively simple in theory. In practice, all it needed was opportunity and deep pockets. Basically, it's kind of like betting on the outcome of a football match, but you've paid off the referee and a couple of players to make sure the game is rigged to go your way. Like Anand said, the options market has to follow the cash market. What the alleged manipulator was essentially doing was buying the bets, spending billions of dollars on buying or selling actual stocks,

and essentially moving the market so that it could win major money through its bets. This alleged operation was carried out using two methods that traders call violent expiries and quiet expiries. I needed some help with understanding these terms, so I asked Anand if he could explain. Okay, so as I explained, the manipulation was happening in two ways. One is a violent expiry and the other is a quiet expiry. So in a violent expiry, the option, the manipulator allegedly was actually purchasing a large number of options. This could either be call options or put options. So when you buy a call option, you expect that the underlying index will eventually go up because then you want to actually benefit from that.

So first he was purchasing these large number of call options and was then also on the expiry day. He was allegedly buying a huge number of stocks in the cash market. So when the underlying index actually shot up, then the options positions also gained. And in this way, the manipulator was benefiting from the violent expiry by buying the call options. So violent expiry can also happen when the manipulator is buying the put options. When he buys the put options, he is taking a bet that the market, the cash market will fall at the end of the expiry. So he first is going to the options market and then buying the put options and then later in the day he's manipulating the cash markets such that the market actually falls. This is how he benefits from buying the put options by buying the put options in a violent.

expiry. So violent expiry happens in two ways by either buying the call option and making the cash market go up or by buying the put options and making the cash market go down. So that's a violent expiry. Essentially, the alleged manipulator would buy options betting that the market would move a certain way. And when it would manipulate the market the way it wanted, it could back the money it won. Simple enough. The other method was the quiet expiry. In a quiet expiry, instead of buying any option, he used to actually sell the options and pocket something called as a premium. It's called the options premium. And then he used to manipulate the index in a way that the index remained flat.

It ended flat. And then he used to actually pocket all those premiums while the sellers on the other end. the buyers on the other end, they suffered because the index ended flat and they ended in a loss. So this was a quiet expiry. Remember the premiums I mentioned earlier? Well, with the quiet expiry, because the alleged manipulator was selling options to traders, the traders were paying it premiums. So, when the market would remain stable instead of swinging up or down,

traders would lose the premiums because, well, their bets were essentially wrong. So that's how expiries work. One pretty dramatic example of this alleged manipulation happening is from Friday, December 13th, 2024. One pretty dramatic example of this alleged manipulation happening is from Friday, December 13th, 2024. For regular traders on the market, that Friday the 13th came with really bad luck. For the alleged manipulator, well, they won big time.

So what happened was, the Censex, India's main stock index, swung by 3,000 points in a single day. To put that in perspective, the average range is about 300 to 400. That's a huge difference. It essentially triggered traders into selling at very bad prices, which means they lost a lot of money. But when someone's losing, you know, someone else. else is winning, which was exactly why this story needed to be published. For the Ken, this was important because it was a problem which was attacking the sanctity of the Indian capital markets.

So last year, actually Sebi had also come out with a report where it said that options trading in India has been exploding. Like a lot, like millions of retail investors and traders have gotten. into options trading and almost all of them are losing money nine out of 10 options traders in in India these individuals were losing money in the options trade and the amount of losses aggregate amounts were in the lacks of gross of rupees now when somebody is losing money somebody is obviously also winning that's the nature of the options trade if it was a market that was you know fair and the trades were fair there's no more issue in that that's fine

because then somebody will win it somebody will lose but if the the market itself is being manipulated and the laws being suffered by individual retail traders and is because of the manipulation or is exacerbated because of the manipulation, then it's a huge problem. It is essentially an attack on the sanctity of the Indian capital market. Nine out of 10 traders. That's a huge number. And the total losses was reportedly almost 2 lakh crore rupees,

lost by more than 11 million individual traders over just three years. So how did Anand find out what was going on? The story actually first came to him as a tip from a trader who had been studying these movements in the market for a while by then. I wanted to know why Anan decided to publish the first story without naming the suspected manipulator. So when Mayank had approached us about a year back in December, I knew it was something big because as I explained,

there was a party that was winning at the expense of of so many others. And this was an indication that those dots are being connected here now. And because it was actually technical, we were also careful about it. And then we got into these long calls with Mayank to understand what was not really happening. But the fact that we took it up also speaks about the editorial independence, and integrity at the Ken. Because this is a story that could have backfired also.

It was about a name that is among the largest in the financial markets in the world. As I mentioned before, Jane Street is huge, one of the world's most successful firms that's managing billions of dollars across the globe. Which meant that the editorial team at the Ken spent weeks verifying the tip before publishing the stories. By June 2025, Anand had enough proof to share his suspicions about the name of the fund.

In July 2025, Sebi issued its interim order against Jane Street Group for alleged manipulation of the market. Like Anand mentioned earlier, Seby asked Jane Street to deposit $4,000 crore rupees. Now, Jane Street has actually paid that money, but it's still appealing the decision. The case is now before India's Securities Appellate Tribunal. Jane Street is arguing that its movements in the market was just something it's calling regular arbitrage. I had Anand explain what that is. So arbitrage essentially means that you then take a position in the cash market. If you actually buy it in the cash market and then you sell it in the options market,

and then get a benefit from that, that you get a difference, which will essentially be the risk-free rate. It's called the risk-free rate. Then you will be able to lock in into that difference. This is called a regular arbitrage. That's not illegal. That's not illegal. But for that to happen, according to Myank, as he was explaining in the earlier podcast, the volumes have to be accurately similar.

If you buy a hundred in the cash market and you sell 100 in the futures market or in the options market, that makes sense. That could be regular arbitrage. In this case, actually, what was happening? that is that if you for if the manipulator was purchasing purchasing hundred in the uh like uh cash market then his positions in the position in the option market was 7x or 8x 700 or 800 so while he was actually suffering a loss in the cash market his position his position in the

options market was gaining manifold so that is not a regular arbitrage Of course, like we mentioned earlier, the investigation is still going on. But it's already quite a consequential case in India. Anan says that it's actually a landmark. This is a landmark case in India. And to me, it indicates that the Indian regulators have taken a very strong position and are sending across this message to everybody involved. including big foreign hedge funds, foreign institutions that manipulation in India will not be tolerated.

You can run, you can't hide. We'll eventually also get you. We have the technical expertise to investigate these kind of traits. In fact, the SEBI order is a very detailed order. It's a very interesting order for those who are interested in this, where it kind of, it, you know, runs into hundreds of pages. So it is among the biggest fines that, you know, Seby has ever imposed on any company. And it's a case which is high stakes where both Seby and Jane Street have a lot to lose if they lose the case. Because it hurts their reputation and their credibility.

So both are going to be defending their positions extremely vigorously here. So why was India specifically vulnerable to this kind of manipulation? I asked Anand if this was happening in other markets as well. See, Indian Options Market is kind of unique, in the sense that it exploded. So in terms of number of contracts, in terms of number of participants, Indian Options Market,

exploded while in other parts of the world these kind of volumes were not being seen. And also because of other kind of peculiarities in the Indian market, this kind of manipulation became possible. Where the manipulative was able to move the cash market in a big way on the expiry days. Where the markets are kind of deeper and where the options market is not as big, this may not be possible. So I was also told by an expert that if this had happened in the US market, it was obviously illegal and the manipulator would have been possibly being bankrupted by now. By the courts, yeah.

So this is definitely a high-stakes case for both Seby and Jane Street. For Jane Street, depending on how the investigation goes, If found guilty, their final penalty could be much, much higher than the €4,000 crore rupees they've already had to pay. If they're not, well, their name is cleared. For Sebi, this is about proving that India's markets are well regulated and fair, and that even powerful global firms will be held accountable if they're caught playing unfairly. And of course, that it's looking out for the millions of individuals, traders who are the most likely to lose in this system.

Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleagues. colleague Rachel Vargis and edited by Rajiv Sien.