Not An Option

Time of India

21 hours ago

Jane Street case, regardless of its outcome, must lead to measures for shielding ordinary investors from risky investments
The alacrity with which trading firm Jane Street has deposited ₹4,875cr ($567mn) in an escrow account to resume trading shows how lucrative the Indian derivatives market is. Last year, the NYC-headquartered firm earned about ₹20,000cr ($2.3bn) here. In the 27 months from Jan 2023 to March 2025, its India profit totalled roughly ₹37,000cr ($4.3bn). And Jane Street is one of many players in the world's largest derivatives market – measured by contracts. This might sound like an achievement but is a concern actually.
As Sebi's months-long investigation found, small retail investors responsible for India's derivatives trading frenzy might have been taken for a ride. It says Jane Street manipulated stock values on the Nifty50 index – 'an intentional, well-planned and sinister scheme' – to profit from derivatives. That was the reason for its July 4 order barring the company from the securities market. Jane Street will appeal the decision, but even if it is absolved of blame, the securities market remains a cautionary tale for small investors, and Sebi's data illustrates this best.
India's 'middle class' is broadly said to start at the ₹5L mark – monthly earnings of around ₹40,000. But people earning less than this amount participated in three out of every four futures and options (F&O) trades last fiscal. In effect, derivatives trading became the new weekly lottery for a segment that might be struggling to pay bills. And just as lottery winners are rare, the vast majority of F&O investors lost money – Sebi says 91.1%. The average loss per investor was ₹1.2L. Investors younger than 30 years, who are the fastest growing cohort, making up 43% of participants now, were even more likely to lose. Altogether, retail investors lost ₹61,000cr in derivatives trading last fiscal, while trading firms, both Indian and foreign, pocketed – no surprise – ₹61,000cr.
It's a spectacular wealth transfer in the wrong direction. Warren Buffett had described derivatives as 'financial weapons of mass destruction' in 2002, well before mortgage-backed securities played a role in the 2008 global financial crisis. There's no denying that derivatives have a role in the modern financial system, and are a useful hedge for businesses, but they are beyond the understanding of the ordinary retail investor, who should be shielded from them. Sebi has already taken regulatory measures, but better financial education is equally important.
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This piece appeared as an editorial opinion in the print edition of The Times of India.