(Bloomberg Opinion) — Jane Street Group has told its employees that the Indian regulator, which has accused it of market manipulation, is “fundamentally mistaken” about its trades. A math nerd in London thinks there may be a way to find out. The Securities and Exchange Board of India sent ripples through trading rooms around the world last Friday when it temporarily banned Jane Street from the local market and froze 48.4 billion rupees ($565 million) in what it alleges to be unlawful gains. According to the New York quant firm’s email to employees, the whole premise of the 105-page interim order is wrong. It is preparing a formal response. The SEBI, meanwhile, is bracing itself for a grueling legal battle. The regulator says that the high-frequency trading giant has made $4.3 billion from India in a little over two years, and so far its officers have only investigated trades in one index. The stakes are high, especially if other countries launch their own probes. That’s a cue for bruised competitors to wade in. Around two years ago, rival XTX Markets Ltd.’s Sharpe ratio — a measure of profitability per unit of risk — went from 10 to zero overnight in India index options. A ratio of zero means there is no compensation for the risk. The trade “never recovered and was completely shut down earlier in 2025, the first time in our 17 years history when we abandoned a market where we used to make money previously,” Alexander Gerko, the billionaire geek behind the UK-based algorithmic trading firm, wrote on LinkedIn. Gerko suspects that his New York competitor got the better of XTX. But did Jane Street, one of the world’s largest market makers, win fair and square? In a subsequent post, Gerko proposed a thought experiment to the self-described puzzle solvers at Jane Street. Here’s how they could prove their smarts: “Imagine reducing all sizes in your strategy by a factor of a 100. If it works better than before (per unit of risk/in terms of margins) then it looks legit. If it stops working altogether after scaling down then question your life choices.” This is a testable hypothesis. The regulator’s contention is that the Jane Street bets were intentionally super-sized. When they hit relatively illiquid equity and futures markets on a day options on the Bank Nifty — a popular gauge of 12 financial stocks — were expiring, they ended up moving the index so that the trader profited spectacularly from its much larger options positions, while consistently losing money in stocks. But what if the regulator is wrong? What if Jane Street has a legitimate and “immensely valuable” proprietary trading strategy for India, as it claimed last year when it sued two of its former traders who had left to work for Millennium Management? (The suit was later settled.) In that case, the firm should be able to demonstrate even higher profitability for smaller position sizes. 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