India's new Securities Code has powerful tools; The Jane Street case shows exactly why they may not be enough

India's Securities Markets Code Bill, 2025, has attracted significant commentary since its introduction in the Lok Sabha in December 2025. Most of it has been favourable, and some of it is warranted. Consolidating three statutes that were written across four different decades, unifying the definitional architecture, giving statutory backing to disgorgement, and introducing a limitation period for investigations, these are genuine improvements to a framework that had become increasingly difficult to navigate coherently.

But I want to make an argument that the congratulatory consensus is overlooking. The Code, as it stands, hands SEBI more authority at precisely the moment when the central question for large-value market participants is not whether the authority exists, but whether the analytical framework exists to exercise it correctly.

The Jane Street case, currently before the Securities Appellate Tribunal, makes this problem impossible to ignore.

In July 2025, SEBI issued a 105-page interim order against Jane Street, a major US-based proprietary trading firm, alleging manipulation of the Bank Nifty index across 18 derivative expiry days between January 2023 and March 2025. SEBI's case was that Jane Street artificially inflated Bank Nifty constituent stocks in the morning, generating bullish signals that drew in retail participants, then aggressively reversed those positions in the afternoon, profiting from options bets placed on the very movement it had engineered. SEBI directed the firm to deposit ₹4,843.57 crore in alleged unlawful gains into escrow and imposed a temporary market ban.

Jane Street's position is that what SEBI characterised as manipulation was, in fact, standard index arbitrage; simultaneous hedging activity across cash and derivatives markets that provides liquidity and promotes price efficiency - activity that is not only legal but structurally necessary for a functioning derivatives market.

Both positions, stated at that level of abstraction, are defensible. That is the problem.

The Jane Street case has exposed a definitional void at the heart of Indian securities enforcement: India does not have a clear, market-tested legal standard for distinguishing legitimate institutional-scale arbitrage from manipulative cross-market strategies when the actor is large enough that its own hedging activity moves prices. The existing Prohibition of Fraudulent and Unfair Trade Practices Regulations rely heavily on inferred intent. SEBI's interim order concluded manipulation on the basis that Jane Street's trading impact, its scale, its timing, and the reversal pattern were inconsistent with "any plausible economic rationale." Jane Street's response is essentially: at an institutional scale, this is what legitimate hedging looks like.

The Securities Markets Code does not resolve this question. It codifies "market abuse" as a unified standard and rightly strengthens SEBI's hand in pursuing it, but the content of that standard, especially as applied to algorithmic strategies, multi-entity structures, and cross-market positions of the kind that characterise today's largest transactions, is left to be defined through subordinate legislation, adjudication, and regulatory guidance that does not yet exist in anything like the clarity the Code implies.

For global institutional investors evaluating large positions in India, and for Indian corporates, family offices, and AIFs operating at the scale where their own transactions move prices, this is not a theoretical concern. It is the central practical risk of operating in this market today.

Let me be precise about what the Code does well, because the critique I am making should not obscure the genuine advances.

The formalisation of disgorgement under Clause 25 matters enormously for high-value enforcement. Previously, disgorgement was exercised on equitable grounds, upheld case by case by the SAT and the Supreme Court. Its statutory codification, with express powers for adjudicating officers to quantify and direct unlawful gains, and for those amounts to be deployed as investor restitution, changes the economics of misconduct at an institutional scale. When Jane Street deposited ₹4,843 crore into escrow pending the SAT proceedings, it was operating under the pre-Code framework. Under the Code, that quantum would have statutory authority behind it from the first order.

The eight-year limitation period for investigations under Clause 16, similarly, is a significant structural improvement for large-deal participants. The absence of any lookback cap has historically operated as a tax on due diligence in public M&A and block acquisitions, acquirers priced open-ended regulatory tail risk into transactions without any principled anchor. The Code provides one, even if the exceptions for systemic market impact and agency-referred matters are broad enough that participants should not treat the eight-year limit as watertight in regulated-sector acquisitions.

The decriminalisation of minor and procedural defaults, shifting them to a civil penalty framework while retaining criminal liability for market abuse and insider trading, is also directionally correct. For large compliance functions operating across complex capital structures, the previous regime created disproportionate risk for technical lapses, delaying filings, inadvertent disclosure errors, and administrative defaults that had nothing to do with market integrity. The Code's tiered framework is more proportionate and more predictable.

These are real gains. But they are gains in the architecture of enforcement, not in the analytical substance that must fill it.

The deepest problem with how the Securities Markets Code will operate for high-value participants is not what it contains. It is what it defers.

The Code is deliberately, explicitly, a framework statute. The specifics that matter most to institutional participants, the standard for market abuse in algorithmic and multi-entity strategies, the methodology for disgorgement quantification in complex derivative positions, the conduct standards for large-position accumulation, and the treatment of cross-market hedging at scale are left to SEBI's subordinate legislation, circulars, and adjudication over time.

This is not unusual for a framework statute. But it creates an asymmetry that large-value participants should understand clearly: the Code's enhanced powers take effect immediately, while the interpretive clarity those participants need to operate confidently will emerge gradually, inconsistently, and through the kind of adversarial proceedings that are expensive for everyone involved.

The Jane Street case is, in a real sense, one of those interpretive proceedings. SAT's eventual ruling on whether SEBI correctly characterised index arbitrage as manipulation will do more to define the market abuse standard for institutional algorithmic strategies than anything the Code says. That ruling will be absorbed into SEBI's enforcement posture, into the way custodians and intermediaries assess counterparty risk, and into the deal terms that sophisticated investors negotiate when they take large positions in Indian markets. A framework statute that does not resolve the underlying question is not a framework. It is an invitation for case law to do the work the legislature declined to do.

Markets are too complex for the statute to anticipate every strategy. But if enforcement will depend on interpretation rather than clear rules, the market deserves to know that upfront, so participants can account for the risk in how they structure and price their activity.

For institutional investors considering significant positions in India, whether in listed equity, structured instruments, or through the AI-only AIF framework that SEBI liberalised in November 2025, the Code's arrival changes three things in practice.

First, compliance architecture must now operate from a unified statute rather than three overlapping ones, which is net positive but requires genuine re-mapping. The Code's broadened definition of "securities" expressly includes hybrid instruments, electronic gold receipts, and onshore rupee bonds issued by multilateral institutions. For institutional investors using India as part of a multi-asset strategy, the jurisdictional perimeter of SEBI's oversight has expanded. That expansion needs to be reflected in how compliance programmes are structured, not just acknowledged.

Second, the economics of large-position management have changed. The Code gives SEBI express statutory authority to quantify unlawful gains and direct disgorgement. In a large institutional portfolio, the question of what constitutes "unlawful gain" in a complex, multi-leg strategy is not self-evident, and the methodology SEBI uses to calculate it, as the Jane Street case demonstrates, is itself contested. Participants operating at scale need to maintain contemporaneous records of economic rationale with a discipline that was advisable before the Code and is essential after it.

Historically, positions and strategies were always open to scrutiny, with no fixed limits. With the Code, the lookback period has now been expressly capped at eight years. This is a structural improvement, but participants should note that exceptions for systemic market impact and agency-referred matters remain broad, so the eight-year cap cannot be treated as absolute.

Let me end where I think the real policy question lies, because it is one that the drafters of the Code and SEBI's leadership need to reckon with directly.

India is simultaneously offering global institutional capital two things: a more liberalised structural framework, through AI-only AIFs, expanded IFSC access, FPI norm rationalisation, and the Code's unified architecture, and a more muscular enforcement posture, as demonstrated by the Jane Street action, the STT hikes on derivatives, and the new margin requirements for F&O participants.

These two things are not contradictory. The world's most sophisticated capital markets combine both. But they require one prerequisite that India has not yet fully built: a shared, publicly articulated analytical standard for distinguishing large, legitimate, price-moving institutional activity from market abuse. Without that standard, the regulatory bargain is asymmetric. The flexibility is real. The enforcement risk is real. The line between them is not.

The Securities Markets Code 2025 is the most important piece of Indian securities legislation since SEBI was created. It deserves credit for what it accomplishes. It also deserves honest engagement with what it leaves unresolved, because the participants who will test those resolutions first are precisely the large-value, institutional-scale participants the Code was designed to govern.

The floor has been re-laid. But we are still negotiating what it means to stand on it.

About the author: Akshaya Bhansali is the Managing Partner of Mindspright Legal.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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