Income Tax Probe Hits Nuvama Amidst Jane Street's Indian Market Re-entry Scrutiny

The Income Tax Department has launched survey operations at the Mumbai offices of Nuvama Wealth and Investment Limited, the local trading partner of global quantitative trading firm Jane Street, broadening the scope of an investigation into potential financial irregularities, days after Jane Street provisionally re-entered Indian markets.

This development unfolds against the backdrop of Jane Street's recent deposit of ₹4,844 crore with the Securities and Exchange Board of India (SEBI). This sum was mandated by the market regulator, which had previously accused Jane Street of extensive market manipulation. SEBI's investigation, which spanned January 2023 to March 2025, alleged the firm amassed staggering profits of ₹36,502.12 crore, primarily from index options, through sophisticated schemes designed to influence index movements, particularly on Nifty and Bank Nifty expiry days. The regulator cited manipulative strategies in 15 out of 18 reviewed expiry-day trades, resulting in a directive to freeze ₹4,840 crore as "unlawful gains." Despite the National Stock Exchange concluding its own probe following a response from Nuvama, SEBI proceeded with enforcement, citing ongoing violations and systemic risk to retail traders. Jane Street has since undertaken to SEBI that it will refrain from options trading and the cash segment until its strategies are clarified, securing regulatory clearance for its conditional return.

The involvement of the Income Tax Department signals a critical expansion of regulatory oversight beyond market manipulation allegations to potential tax compliance and broader financial transparency issues. In the realm of high-frequency trading (HFT) and algorithmic strategies, which have rapidly expanded across global financial hubs including Mumbai, the lines between aggressive trading and manipulative practices are often under intense scrutiny. India's market regulators, including SEBI and now increasingly the IT Department, face the complex challenge of fostering innovation while safeguarding market integrity. Historically, instances of alleged manipulation or unusual trading patterns have led to significant regulatory actions, reinforcing SEBI's mandate for investor protection and ensuring a level playing field in the derivatives segment, a market crucial for hedging and price discovery.

Industry observers suggest this concerted action underscores a growing trend of inter-agency cooperation in addressing complex financial cases. The IT Department's probe could delve into the source and taxation of the substantial profits generated by Jane Street, particularly the ₹43,289 crore from index options, and whether all such gains were appropriately declared and taxed. For domestic brokerage firms like Nuvama, acting as on-ground partners for global entities, this raises the bar for due diligence and compliance, as their involvement in the alleged activities of their foreign clients can draw considerable regulatory attention. This incident is likely to prompt a re-evaluation of risk management frameworks for all participants facilitating HFT operations in India.

Looking ahead, this heightened scrutiny could lead to more stringent regulations on algorithmic trading, potentially impacting foreign institutional investor (FII) participation if compliance burdens increase significantly. Analysts anticipate that regulators may push for greater transparency in trading strategies and enhanced oversight of broker-client relationships involving sophisticated algorithms. The outcome of the IT Department's investigation, coupled with SEBI's ongoing monitoring, will serve as a precedent for how India's financial ecosystem balances the benefits of advanced trading technologies with the imperative of preventing market abuse. This proactive stance aims to reinforce investor confidence and maintain the credibility of India's capital markets on the global stage.

As investigations proceed, the financial community awaits further details on the precise nature of the alleged irregularities, highlighting the continuous evolution of regulatory frameworks necessary to navigate the complexities of modern financial markets.