Latest news with #JS
Mint
28-07-2025
- Business
- Mint
Somnath Mukherjee: Sebi's Jane Street order was the canary our market needed
Arbitrage or market manipulation? Jane Street believes it is an uber-efficient arbitrageur. It spotted pricing anomalies between index options and the index's stock constituents, and used sophisticated trading models to profit from the arbitrage. The Securities and Exchange Board of India's (Sebi) order has some interesting findings. On 17 January 2024, the expiry day for Bank Nifty derivatives, the index opened 2% lower due to weak earnings of some of its constituents. However, options on the Bank Nifty traded at a level where the implied price was higher, resulting in an anomalous price spread. JS did what textbooks tell us: buy stocks that make up the Bank Nifty while selling options on this index. The trade worked as textbooks say it would: the spread narrowed within six minutes. But here's the twist: the total value of Bank Nifty stocks purchased was ₹572 crore while the total notional value of the options sold was ₹8,751 crore, which is more than 15 times. This oddity continued. By mid-day, JS had bought Bank Nifty stocks and futures worth over ₹5,000 crore and sold options worth over ₹30,000 crore. Arbitrage is about hedging, but one doesn't hedge a bet on India winning the Border-Gavaskar Trophy by placing 15 bets on India not-winning it. So JS started selling its stock/futures positions. But liquidity in these segments is so low that its trades tanked prices, resulting in losses for JS in its long index positions. But its large short options position (5-6 times in notional exposure to its cash/futures positions) got settled at market close at a massive profit. In short, JS appeared to move prices in the illiquid leg of the market (cash/futures) so that it could profit from its large position in the liquid leg (options). Also Read: Devina Mehra: How derivative dreams can turn into nightmares but still lure investors Arbitrage or manipulation? Either way, Sebi's order has acted as the proverbial canary in the coal mine to reveal potentially poisonous fumes in our capital markets. Fume 1—Lopsided market structure: India's equity market is the second largest among emerging economies by market capitalization and volumes both. However, volumes are skewed—over 90% are in derivatives (futures and options or F&O), with options accounting for the bulk. The cash segment is shallow. Daily volumes in the shares of HDFC Bank, the largest Bank Nifty constituent, for instance, are only about ₹2,000 crore. To put this in context, the total equity assets under management of India's mutual funds (MFs) are over ₹30 trillion, with ₹50-60,000 crore worth of flows every month. This skew causes distortions. Also Read: Andy Mukherjee: Jane Street's secret sauce for Indian markets should be tested out Fume 2—Skewed tax structure: A small ₹5,000 crore trade could move prices because there is no countervailing Indian entity that's able to provide liquidity by playing the other side of JS's 'arbitrage' trades. The reason is simple—tax rules. In India, the securities transaction tax (STT) on derivatives is a fraction of what it is on stocks, incentivizing investors to move to F&O from the cash segment. Further, foreign portfolio investors (FPIs) enjoy a large tax advantage over Indians. FPIs' F&O trades qualify for capital-gains tax (and are taxed at 20% if short-term and 12.5% if long-term), but for Indian entities, the same gains are deemed to be income (taxed at 25% for corporates and 39% for individuals/trusts). Fume 3—Regulation stifles Indian institutions: For many years, FPIs provided the dominant share of liquidity in Indian stock markets. Over the last decade, Indian institutions, especially MFs, have risen in stature and now account for a larger share of India's market capitalization and volumes than FPIs. This provides a diversified pool of liquidity in the cash segment. But in the F&O segment, a regulatory overhang prevents the creation of such counterweight liquidity. Why? Also Read: Jane Street: Gaming an outdated system is not necessarily illegal in India First, domestic institutional investors are mostly not allowed to use leverage, but FPIs are. Second, short-selling, which lets market participants act on bearish views, exists mostly in the realm of theory; its process is such that participation and liquidity are low. Third, a prudential aversion to leverage has left F&O trading as its only source. Bank lending to capital markets is heavily circumscribed and non-banking financial companies have limited capacity to lend. This reduces domestic market liquidity and pushes participants towards the F&O segment. Fourth, while there are all sorts of limits in equity markets, index options face none. This means participants can build positions in index options many times the stock position limits on the underlying stocks. Fifth, a very high proportion of market liquidity is concentrated in short-term options contracts. India is unique as a large market with zero liquidity in derivatives of more than three months tenor. Also Read: Sebi's Jane Street interim order made India's stock market sit up for good reason Solutions are within grasp: India's financial markets are world class. So are its regulators (think of Sebi and the Reserve Bank of India). Diversified liquidity is the lifeblood of any well-functioning market. Small tweaks in tax laws, alongside a rethink on the flexibility afforded to Indian institutions (especially MFs) would be a great fresh start. The appointment of market-makers for longer-dated derivatives is another idea that is well-tested in India; in the 1990s, RBI licensed a slew of primary dealers as market-makers for government bonds with great results. India's capital markets are valuable. Sebi has done its bit as the canary by highlighting emergent risks. It is time now to make space for fresh ideas so that the mine continues to prosper for India. These are the author's personal views. The author is chief investment officer of ASK Private Wealth.
Hans India
15-07-2025
- Business
- Hans India
Jane Street urges Sebi to lift curbs
New Delhi US-basedhedge fund Jane Street, which allegedly made handsome gains through market manipulation, has deposited the mandated Rs4,843.57 crore in an escrow account in favour of Sebi and requested it to lift certain watchdog is examining the request, Sebi said in a statement on Monday. Indian capital market lost Rs1.4 lakh crore market capitalisation(Mcap) since Jane Street's index manipulation came to light seven days ago. In an interim order on July 3, the regulator found Jane Street (JS) guilty of manipulating indices by taking bets in cash and futures & options markets simultaneously for making massive gains. Sebi barred the hedge fund from accessing the market and impounded over Rs4,843 crore in gains. The probe found that JS made a profit of Rs36,671 crore on a net basis during the probe period from January 2023-May 2025. In compliance with the interim order, a sum of Rs4,843.57 crore has been credited to an escrow account with a lien marked in favour of Sebi, the regulator said. 'Jane Street has further requested Sebi that, following the creation of this escrow account in compliance with Sebi directions, certain conditional restrictions imposed under the interim order be lifted and that Sebi issue appropriate directions in this regard,' the statement noted. 'This request is currently under examination by Sebi in accordance with the directions of the interim order,' it added. The regulator said it remains committed to following due process and ensuring the integrity of the securities market. Sebi called it a case of 'intra-day index manipulation,' flagging what it described as aggressive, unhedged positions in Nifty Bank options and other Sebi investigation is expected to take another 6-9 months before a final report and show cause notice will be issued to Jane Street. The markets regulator described it as 'non-neutral trading behaviour', a strategic attempt to influence prices rather than simply engage with the market. And the tactic wasn't random; it followed a well-known play in the trading world, which is termed marking the close. Jane Street is a proprietary trading firm, which means it trades with its own capital rather than managing client funds. The firm allegedly made a staggering Rs32,681 crore in profits by manipulating the Indian stock market and repatriating the amount overseas. Jane Street disputed the findings of Sebi's interim order. In its response, Jane Street said:'We reject the premise and the substance of the order in the strongest possible terms'.
Time of India
07-07-2025
- Business
- Time of India
Jane Street vs Sebi case places Rs 6 lakh crore multibagger corner of Dalal Street on edge
Sebi 's explosive crackdown on American hedge fund Jane Street has sent tremors through India's Rs 6.2 lakh crore capital market infrastructure, with the regulatory action targeting alleged market manipulation worth Rs 36,500 crore in profits threatening to reshape Dalal Street's derivatives landscape. The Nifty Capital Market index, comprising 15 stocks with a combined market capitalization of Rs 6.2 lakh crore, traded flat on Monday after Friday's selloff as investors grappled with the implications of Sebi's interim order barring Jane Street from India's securities market. Capital market infra-related stocks have been giving multibagger returns on the back of surge in retail as well as institutional participation in India's growth story. In the last 3 years, BSE shares are up over 1,100%, while others like MCX India, Anand Rathi Wealth, Motilal Oswal, 360 One WAM, CDSL and others have also been multibaggers. Jefferies said as Jane Street "participated in the cash & derivatives markets as an FPI as well as a member, hence, its contribution in market volumes would be included in FPI as well as prop categories." The brokerage estimates that Jane Street's contribution to BSE would be around 1% of the exchange's business. According to Jefferies' analysis of exchange data, "FPIs form 3-8% of equity derivatives turnover and prop traders form 60-65% of total; rest by individuals & others," highlighting the critical dependence of India's derivatives market on proprietary trading firms. The global brokerage noted that Jane Street can "contest the claim or settle it and continue participation in the market," while observing that "given that the inquiry was already underway, we understand its activity levels have declined over the past few months." Also Read | Jane Street aftermath: 4 stocks suffer Rs 12,000 crore wipeout in collateral damage Jefferies' detailed impact assessment shows stark differences across market participants. "For BSE, derivatives drive ~58% of FY26E revenues. In this segment, FPIs drive ~3-4% of turnover, and we estimate that contribution from JS would be a smaller subset of that (~1% as per JEFe). Hence, we see a limited impact of JS on BSE's earnings," the brokerage stated. However, Nuvama faces significantly higher exposure. "In the case of Nuvama, asset services form ~26% and IB & IE form ~20% of our FY26E revenues, while contribution to profits is higher given lower C/I ratios. We understand that JS could be an important client for Nuvama and assuming ~15-20% of asset services and IE revenues come from it, we expect an impact of ~5-6% on overall revenues and ~7-8% on earnings," Jefferies warned. Jefferies' conversations with market participants reveal mixed signals about the fallout. "Prop traders/ HFTs see a manageable impact from JS' exit as the fall in its turnover may be made-up by props/ HFTs as manipulative factors potentially reduce," the brokerage noted, adding that "there should not be a counterparty risk on JS' contracts as trades are covered by the clearing corporations and JS has 3 months to unwind open positions." The brokerage emphasized that "the key unknown is whether this instance can lead to a knock-on impact on trading vols, and we feel that trends over the next week on derivatives volumes will be key to watch, especially the index derivatives expiries on Tuesday & Thursday." Also Read | Explained: What is Jane Street and how it made Rs 36,500 crore profit by gaming Dalal Street Interestingly, Jefferies observed that "index options premium turnover was a tad higher week-on-week (Wow) for both exchanges (i.e. this Friday vs. last Friday) and a tad lower than 2-month averages," suggesting immediate market resilience despite the regulatory shock. Industry voices echo concerns "Prop trading firms like Jane Street account for nearly 50% of options trading volumes. If they pull back— which seems likely —retail activity (~35%) could take a hit too. So this could be bad news for both exchanges and brokers," warned Nithin Kamath, CEO of Zerodha. Dinesh Thakkar, Managing Director, Chairman and Founder of Angel One, emphasized the structural nature of India's market growth: "Retail participation in equity derivatives has surged from just 2% in 2018 to over 40% in 2025. India's market opportunity is structural, not cyclical and certainly not dependent on any one firm." "Jane Street is one of the largest traders contributing to Indian markets," explained Siddarth Bhamre, head of institutional research at Asit C Mehta. "When big players are banned for wrongdoing, others become cautious and reduce activity, leading to lower volumes." Regulatory ramifications Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, observed: "The regulatory action on Jane Street and its implications will be closely watched by the market. The volume of derivative trading is likely to take a hit impacting stock exchanges and some brokerages." Ashish Nanda, President & Chief Digital Business Officer at Kotak Securities, outlined broader implications: "HFT's will surely be feeling the heat. Many will be re-assessing their strategies. The fact is that HFT firms provide a lot of liquidity in the markets. If there is reduction in activity by HFT's, it will also impact retail volumes." Veteran market expert Ajay Srivastava struck a defiant tone: "Let us be honest, every market in the world, including the US market, had these problems of being the bad guys... Just catch the guy, penalise him, show him this thing, who the brokerages who are part of it penalise them heavily, does not matter. Make them an example that no one dares do it again." As Jefferies noted, "What is unclear & how to judge impact," with the next derivatives expiry cycles on Tuesday and Thursday set to reveal whether India's Rs 6 lakh crore capital market infrastructure can absorb the shock or if Jane Street's exit marks the beginning of a broader algorithmic trading exodus from Dalal Street.
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Business Standard
05-07-2025
- Business
- Business Standard
Retail trading at risk if proprietary giants like Jane St exit: Zerodha CEO
Zerodha founder and CEO Nithin Kamath has cautioned that retail trading activity could be impacted if proprietary trading firms like Jane Street, which contribute nearly 50 per cent of options trading volumes, scale back their participation in the market. This development could have negative implications for both exchanges and brokers, he added. "Prop trading firms like Jane Street account for nearly 50 per cent of options trading volumes. If they pull back which seems likely retail activity (~35 per cent) could take a hit too. So this could be bad news for both exchanges and brokers," Kamath said on X. "The next few days will be telling. F&O volumes might reveal just how reliant we are on these prop giants," he added. In an order released in the early hours of Friday, the market regulator found Jane Street (JS), a New York-based hedge fund, guilty of manipulating the indices by taking bets in the cash, and, futures and options markets simultaneously for making handsome gains. It has barred the hedge fund from accessing the market and impounded over Rs 4,843 crore in gains. The probe has found that JS made a profit of Rs 36,671 crore on a net basis during the probe period from January 2023 - May 2025. Kamath said that if the allegations against Jane Street are true, it's "blatant market manipulation" and despite warnings from the exchange, it continued. "The shocking part? They kept at it even after receiving warnings from the exchanges. Maybe this is what happens when you're used to the lenient U.S. regulatory regime. Think about the structure of U.S. markets: dark pools, payment for order flow, and other loopholes that allow hedge funds to make billions off retail investors. "None of these practices would be allowed in India, thanks to our regulators, You've got to hand it to Sebi for going after Jane Street," he added.
Mint
05-07-2025
- Business
- Mint
Retail trading may be impacted if prop giants like Jane Street step back, warns Zerodha CEO
New Delhi, Jul 5 (PTI) Zerodha founder and CEO Nithin Kamath has cautioned that retail trading activity could be impacted if proprietary trading firms like Jane Street, which contribute nearly 50 per cent of options trading volumes, scale back their participation in the market. This development could have negative implications for both exchanges and brokers, he added. "Prop trading firms like Jane Street account for nearly 50% of options trading volumes. If they pull back – which seems likely – retail activity (~35%) could take a hit too. So this could be bad news for both exchanges and brokers," Kamath said on X. "The next few days will be telling. F&O volumes might reveal just how reliant we are on these prop giants," he added. In an order released in the early hours of Friday, the market regulator found Jane Street (JS), a New York-based hedge fund, guilty of manipulating the indices by taking bets in the cash, and, futures and options markets simultaneously for making handsome gains. It has barred the hedge fund from accessing the market and impounded over ₹ 4,843 crore in gains. The probe has found that JS made a profit of ₹ 36,671 crore on a net basis during the probe period from January 2023 - May 2025. Kamath said that if the allegations against Jane Street are true, it's "blatant market manipulation" and despite warnings from the exchange, it continued. "The shocking part? They kept at it even after receiving warnings from the exchanges. Maybe this is what happens when you're used to the lenient U.S. regulatory regime. Think about the structure of U.S. markets: dark pools, payment for order flow, and other loopholes that allow hedge funds to make billions off retail investors. "None of these practices would be allowed in India, thanks to our regulators, You've got to hand it to Sebi for going after Jane Street," he added.
