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Business Standard
3 days ago
- Business
- Business Standard
Jane Street to argue that retail demand drove its India options trades
Jane Street Group LLC is expected to argue that its controversial Indian options trades were a response to outsized demand from retail investors, people familiar with the matter said. The trading giant has been working on its defense against market manipulation allegations from the Securities and Exchange Board of India. The regulator in early July alleged Jane Street had taken large positions that artificially influenced prices in the country's stock and futures markets, moving them in favor of its options bets on multiple days. A 105-page order from Sebi detailing its preliminary findings devoted a long section to Jane Street's trading activity on Jan. 17, 2024, which was the firm's most profitable day over a roughly two-year period that the regulator scrutinised. The New York-based firm is expected to argue it was eager to facilitate options bets from the country's retail investors, knowing it would be largely unhedged, said the people familiar with the matter, who asked not to be identified discussing private information. The firm hedged less in India than in other markets and spread out its hedging activity over multiple hours on that day in January 2024 to reduce its market impact, the people said it is likely to explain. On that morning, the NSE Nifty Bank Index dropped 3.2 per cent at the open and fell further during the day. Sebi alleged that Jane Street aggressively bought the index's constituent stocks in the cash and futures markets to manipulate the gauge's intraday levels, then reversed the trades in the afternoon to profit from a much larger bearish index options position. Jane Street is expected to say that high retail demand for options on that index was a key driver behind its trading in the morning, according to the people familiar with the matter. The firm will likely argue that individual traders bought about $4 billion worth of the gauge's stocks using options in the first half hour of trading, and that Jane Street — which was acting as a market maker — facilitated about $1 billion of that demand. Those numbers are based on net delta positions, which represent the value of cash equities the options positions are equivalent to when taking into account the derivatives' sensitivity to the underlying assets' price moves. Partial Hedging Sebi's order said Jane Street's share purchases on that January 2024 morning represented between approximately 16 per cent and 25 per cent of the trading turnover for 10 of the 12 Nifty Bank Index stocks, making the firm by far the single largest net buyer. As Jane Street sold call options and bought puts, it amassed a bearish position that represented 7.3 times the size of its long cash and futures bets, according to the regulator. Jane Street is expected to argue that the high retail options demand created a gap between prices implied by the options and those reflected by the shares, and the firm sought to close it through a standard arbitrage trade, the people familiar said. The retail demand was so large that only 10 per cent of it could have been hedged — partial hedging being a common practice among derivatives market makers internationally, the firm is expected to say. In the afternoon, Jane Street sold the stocks over more than three hours, spreading out its hedging to protect against settlement-price uncertainty as the options were about to expire, also a typical tactic globally, the people said it will argue. Huge Turnover Retail traders' enthusiasm for options has helped turn India into the world's biggest market for listed derivatives by contracts traded, with turnover of more than 300 times that of cash equities. Global trading firms have used their capital and technological edge to profit from that large imbalance, but local investors have cumulatively incurred billions of dollars in losses, leading the regulator to crack down on the trading frenzy. Critics of Jane Street say the sheer size of its positions built up over a short time would have given the firm market-moving power, even if the trades were within regulatory limits. Alexander Gerko, the billionaire founder of rival XTX Markets Ltd., has challenged Jane Street to show that its India trading strategy was 'legit' by proving it would work better after scaling it down by a factor of a 100. 'Any 'normal' strategy works worse as it scales up, due to market impact, unless your strategy IS market impact,' he wrote in a LinkedIn post earlier this month. The regulator's interim order presented serious allegations and a 'compelling narrative,' though it is not certain that Jane Street acted inappropriately based on the initial findings, said Abhiraj Arora, a Mumbai-based partner at law firm Saraf and Partners who once worked at Sebi's surveillance and investigations department. Arora, who isn't involved in the case, said too harsh a crackdown and excessive surveillance of market makers could lead to wider bid-ask spreads, poorer trade execution and increased price swings. The Jane Street case ultimately 'serves as a significant test for India's regulatory framework and its capacity to oversee increasingly complex global trading practices,' he said.
Business Times
4 days ago
- Business
- Business Times
Jane Street to argue that retail demand drove its India trades
[HONG KONG] Jane Street Group is expected to argue that its controversial Indian options trades were a response to outsized demand from retail investors, sources familiar with the matter said. The trading giant has been working on its defence against market manipulation allegations from the Securities and Exchange Board of India (Sebi). The regulator in early July alleged Jane Street had taken large positions that artificially influenced prices in the country's stock and futures markets, moving them in favour of its options bets on multiple days. Jane Street said on Monday (Jul 28) that it has sought an extension to respond to the interim order. Last week, Sebi lifted Jane Street's temporary trading ban after the firm deposited 48.4 billion rupees (S$718 million) in alleged 'unlawful gains' into an escrow account. A 105-page order from Sebi detailing its preliminary findings devoted a long section to Jane Street's trading activity on Jan 17, 2024, which was the firm's most profitable day over a roughly two-year period that the regulator scrutinised. The New York-based firm is expected to argue it was eager to facilitate options bets from the country's retail investors, knowing it would be largely unhedged, said the sources familiar with the matter, who asked not to be identified discussing private information. The firm hedged less in India than in other markets and spread out its hedging activity over multiple hours on that day in January 2024 to reduce its market impact, the sources said it is likely to explain. On that morning, the NSE Nifty Bank Index dropped 3.2 per cent at the open and fell further during the day. Sebi alleged that Jane Street aggressively bought the index's constituent stocks in the cash and futures markets to manipulate the gauge's intraday levels, then reversed the trades in the afternoon to profit from a much larger bearish index options position. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Jane Street is expected to say that high retail demand for options on that index was a key driver behind its trading in the morning, according to the sources familiar with the matter. The firm will likely argue that individual traders bought about US$4 billion worth of the gauge's stocks using options in the first half hour of trading, and that Jane Street, which was acting as a market maker, facilitated about US$1 billion of that demand. Those numbers are based on net delta positions, which represent the value of cash equities, the options positions are equivalent to when taking into account the derivatives' sensitivity to the underlying assets' price moves. Partial hedging Sebi's order said that Jane Street's share purchases on that January 2024 morning represented between approximately 16 per cent and 25 per cent of the trading turnover for 10 of the 12 Nifty Bank Index stocks, making the firm by far the single largest net buyer. As Jane Street sold call options and bought puts, it amassed a bearish position that represented 7.3 times the size of its long cash and futures bets, according to the regulator. Jane Street is expected to argue that the high retail options demand created a gap between prices implied by the options and those reflected by the shares, and the firm sought to close it through a standard arbitrage trade, the sources familiar said. The retail demand was so large that only 10 per cent of it could have been hedged, partial hedging being a common practice among derivatives market makers internationally, the firm is expected to say. In the afternoon, Jane Street sold the stocks over more than three hours, spreading out its hedging to protect against settlement-price uncertainty as the options were about to expire, also a typical tactic globally, the sources said it will argue. Sebi did not respond to a request for comment. Huge turnover Retail traders' enthusiasm for options has helped turn India into the world's biggest market for listed derivatives by contracts traded, with turnover of more than 300 times that of cash equities. Global trading firms have used their capital and technological edge to profit from that large imbalance, but local investors have cumulatively incurred billions of US dollars in losses, leading the regulator to crack down on the trading frenzy. Critics of Jane Street say the sheer size of its positions built up over a short time would have given the firm market-moving power, even if the trades were within regulatory limits. Alexander Gerko, the billionaire founder of rival XTX Markets, has challenged Jane Street to show that its India trading strategy was 'legit' by proving it would work better after scaling it down by a factor of 100. 'Any 'normal' strategy works worse as it scales up, due to market impact, unless your strategy IS market impact,' he wrote in a LinkedIn post earlier this month. The regulator's interim order presented serious allegations and a 'compelling narrative', though it is not certain that Jane Street acted inappropriately based on the initial findings, said Abhiraj Arora, a Mumbai-based partner at law firm Saraf and Partners who once worked at Sebi's surveillance and investigations department. Arora, who is not involved in the case, said that too harsh a crackdown and excessive surveillance of market makers could lead to wider bid-ask spreads, poorer trade execution and increased price swings. The Jane Street case ultimately 'serves as a significant test for India's regulatory framework and its capacity to oversee increasingly complex global trading practices', he said. BLOOMBERG
Mint
4 days ago
- Business
- Mint
Jane Street working on its defense against stock market manipulation allegations from Sebi, here's how
Jane Street Group LLC is expected to argue that its controversial Indian options trades were a response to outsized demand from retail investors, people familiar with the matter said. The trading giant has been working on its defense against market manipulation allegations from the Securities and Exchange Board of India. The regulator in early July alleged Jane Street had taken large positions that artificially influenced prices in the country's stock and futures markets, moving them in favor of its options bets on multiple days. Jane Street said on Monday it has sought an extension to respond to the interim order. Last week, SEBI lifted Jane Street's temporary trading ban after the firm deposited 48.4 billion rupees ($560 million) in alleged 'unlawful gains' into an escrow account. A 105-page order from SEBI detailing its preliminary findings devoted a long section to Jane Street's trading activity on Jan. 17, 2024, which was the firm's most profitable day over a roughly two-year period that the regulator scrutinized. The New York-based firm is expected to argue it was eager to facilitate options bets from the country's retail investors, knowing it would be largely unhedged, said the people familiar with the matter, who asked not to be identified discussing private information. The firm hedged less in India than in other markets and spread out its hedging activity over multiple hours on that day in January 2024 to reduce its market impact, the people said it is likely to explain. On that morning, the NSE Nifty Bank Index dropped 3.2% at the open and fell further during the day. SEBI alleged that Jane Street aggressively bought the index's constituent stocks in the cash and futures markets to manipulate the gauge's intraday levels, then reversed the trades in the afternoon to profit from a much larger bearish index options position. Jane Street is expected to say that high retail demand for options on that index was a key driver behind its trading in the morning, according to the people familiar with the matter. The firm will likely argue that individual traders bought about $4 billion worth of the gauge's stocks using options in the first half hour of trading, and that Jane Street — which was acting as a market maker — facilitated about $1 billion of that demand. Those numbers are based on net delta positions, which represent the value of cash equities the options positions are equivalent to when taking into account the derivatives' sensitivity to the underlying assets' price moves. SEBI's order said Jane Street's share purchases on that January 2024 morning represented between approximately 16% and 25% of the trading turnover for 10 of the 12 Nifty Bank Index stocks, making the firm by far the single largest net buyer. As Jane Street sold call options and bought puts, it amassed a bearish position that represented 7.3 times the size of its long cash and futures bets, according to the regulator. Jane Street is expected to argue that the high retail options demand created a gap between prices implied by the options and those reflected by the shares, and the firm sought to close it through a standard arbitrage trade, the people familiar said. The retail demand was so large that only 10% of it could have been hedged — partial hedging being a common practice among derivatives market makers internationally, the firm is expected to say. In the afternoon, Jane Street sold the stocks over more than three hours, spreading out its hedging to protect against settlement-price uncertainty as the options were about to expire, also a typical tactic globally, the people said it will argue. SEBI did not respond to a request for comment. Retail traders' enthusiasm for options has helped turn India into the world's biggest market for listed derivatives by contracts traded, with turnover of more than 300 times that of cash equities. Global trading firms have used their capital and technological edge to profit from that large imbalance, but local investors have cumulatively incurred billions of dollars in losses, leading the regulator to crack down on the trading frenzy. Critics of Jane Street say the sheer size of its positions built up over a short time would have given the firm market-moving power, even if the trades were within regulatory limits. Alexander Gerko, the billionaire founder of rival XTX Markets Ltd., has challenged Jane Street to show that its India trading strategy was 'legit' by proving it would work better after scaling it down by a factor of a 100. 'Any 'normal' strategy works worse as it scales up, due to market impact, unless your strategy IS market impact,' he wrote in a LinkedIn post earlier this month. The regulator's interim order presented serious allegations and a 'compelling narrative,' though it is not certain that Jane Street acted inappropriately based on the initial findings, said Abhiraj Arora, a Mumbai-based partner at law firm Saraf and Partners who once worked at SEBI's surveillance and investigations department. Arora, who isn't involved in the case, said too harsh a crackdown and excessive surveillance of market makers could lead to wider bid-ask spreads, poorer trade execution and increased price swings. The Jane Street case ultimately 'serves as a significant test for India's regulatory framework and its capacity to oversee increasingly complex global trading practices,' he said. Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Economic Times
4 days ago
- Business
- Economic Times
Jane Street to argue that retail demand drove its India trades
Jane Street Group LLC is expected to argue that its controversial Indian options trades were a response to outsized demand from retail investors, people familiar with the matter said. ADVERTISEMENT The trading giant has been working on its defense against market manipulation allegations from the Securities and Exchange Board of India. The regulator in early July alleged Jane Street had taken large positions that artificially influenced prices in the country's stock and futures markets, moving them in favor of its options bets on multiple days. Jane Street said on Monday it has sought an extension to respond to the interim order. Last week, SEBI lifted Jane Street's temporary trading ban after the firm deposited 48.4 billion rupees ($560 million) in alleged 'unlawful gains' into an escrow account. A 105-page order from SEBI detailing its preliminary findings devoted a long section to Jane Street's trading activity on Jan. 17, 2024, which was the firm's most profitable day over a roughly two-year period that the regulator New York-based firm is expected to argue it was eager to facilitate options bets from the country's retail investors, knowing it would be largely unhedged, said the people familiar with the matter, who asked not to be identified discussing private information. The firm hedged less in India than in other markets and spread out its hedging activity over multiple hours on that day in January 2024 to reduce its market impact, the people said it is likely to explain. On that morning, the NSE Nifty Bank Index dropped 3.2% at the open and fell further during the day. SEBI alleged that Jane Street aggressively bought the index's constituent stocks in the cash and futures markets to manipulate the gauge's intraday levels, then reversed the trades in the afternoon to profit from a much larger bearish index options position. ADVERTISEMENT Jane Street is expected to say that high retail demand for options on that index was a key driver behind its trading in the morning, according to the people familiar with the matter. The firm will likely argue that individual traders bought about $4 billion worth of the gauge's stocks using options in the first half hour of trading, and that Jane Street — which was acting as a market maker — facilitated about $1 billion of that demand. Those numbers are based on net delta positions, which represent the value of cash equities the options positions are equivalent to when taking into account the derivatives' sensitivity to the underlying assets' price moves. ADVERTISEMENT SEBI's order said Jane Street's share purchases on that January 2024 morning represented between approximately 16% and 25% of the trading turnover for 10 of the 12 Nifty Bank Index stocks, making the firm by far the single largest net buyer. As Jane Street sold call options and bought puts, it amassed a bearish position that represented 7.3 times the size of its long cash and futures bets, according to the regulator. Jane Street is expected to argue that the high retail options demand created a gap between prices implied by the options and those reflected by the shares, and the firm sought to close it through a standard arbitrage trade, the people familiar said. ADVERTISEMENT The retail demand was so large that only 10% of it could have been hedged — partial hedging being a common practice among derivatives market makers internationally, the firm is expected to say. In the afternoon, Jane Street sold the stocks over more than three hours, spreading out its hedging to protect against settlement-price uncertainty as the options were about to expire, also a typical tactic globally, the people said it will argue. ADVERTISEMENT SEBI did not respond to a request for traders' enthusiasm for options has helped turn India into the world's biggest market for listed derivatives by contracts traded, with turnover of more than 300 times that of cash equities. Global trading firms have used their capital and technological edge to profit from that large imbalance, but local investors have cumulatively incurred billions of dollars in losses, leading the regulator to crack down on the trading of Jane Street say the sheer size of its positions built up over a short time would have given the firm market-moving power, even if the trades were within regulatory limits. Alexander Gerko, the billionaire founder of rival XTX Markets Ltd., has challenged Jane Street to show that its India trading strategy was 'legit' by proving it would work better after scaling it down by a factor of a 100.'Any 'normal' strategy works worse as it scales up, due to market impact, unless your strategy IS market impact,' he wrote in a LinkedIn post earlier this regulator's interim order presented serious allegations and a 'compelling narrative,' though it is not certain that Jane Street acted inappropriately based on the initial findings, said Abhiraj Arora, a Mumbai-based partner at law firm Saraf and Partners who once worked at SEBI's surveillance and investigations department. Arora, who isn't involved in the case, said too harsh a crackdown and excessive surveillance of market makers could lead to wider bid-ask spreads, poorer trade execution and increased price swings. The Jane Street case ultimately 'serves as a significant test for India's regulatory framework and its capacity to oversee increasingly complex global trading practices,' he said. (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
4 days ago
- Business
- Time of India
Jane Street to argue that retail demand drove its India trades
Jane Street Group LLC is expected to argue that its controversial Indian options trades were a response to outsized demand from retail investors, people familiar with the matter said. The trading giant has been working on its defense against market manipulation allegations from the Securities and Exchange Board of India. The regulator in early July alleged Jane Street had taken large positions that artificially influenced prices in the country's stock and futures markets, moving them in favor of its options bets on multiple days. Explore courses from Top Institutes in Please select course: Select a Course Category Cybersecurity Healthcare Data Science Leadership Design Thinking Data Science Product Management healthcare Data Analytics PGDM Operations Management others Technology Project Management Management CXO Artificial Intelligence MCA Others Digital Marketing Finance Degree MBA Public Policy Skills you'll gain: Duration: 10 Months MIT xPRO CERT-MIT xPRO PGC in Cybersecurity Starts on undefined Get Details Jane Street said on Monday it has sought an extension to respond to the interim order. Last week, SEBI lifted Jane Street's temporary trading ban after the firm deposited 48.4 billion rupees ($560 million) in alleged 'unlawful gains' into an escrow account. A 105-page order from SEBI detailing its preliminary findings devoted a long section to Jane Street's trading activity on Jan. 17, 2024, which was the firm's most profitable day over a roughly two-year period that the regulator scrutinized. The New York-based firm is expected to argue it was eager to facilitate options bets from the country's retail investors, knowing it would be largely unhedged, said the people familiar with the matter, who asked not to be identified discussing private information. The firm hedged less in India than in other markets and spread out its hedging activity over multiple hours on that day in January 2024 to reduce its market impact, the people said it is likely to explain. Live Events On that morning, the NSE Nifty Bank Index dropped 3.2% at the open and fell further during the day. SEBI alleged that Jane Street aggressively bought the index's constituent stocks in the cash and futures markets to manipulate the gauge's intraday levels, then reversed the trades in the afternoon to profit from a much larger bearish index options position. Agencies Jane Street is expected to say that high retail demand for options on that index was a key driver behind its trading in the morning, according to the people familiar with the matter. The firm will likely argue that individual traders bought about $4 billion worth of the gauge's stocks using options in the first half hour of trading, and that Jane Street — which was acting as a market maker — facilitated about $1 billion of that demand. Those numbers are based on net delta positions, which represent the value of cash equities the options positions are equivalent to when taking into account the derivatives' sensitivity to the underlying assets' price moves. Partial Hedging SEBI's order said Jane Street's share purchases on that January 2024 morning represented between approximately 16% and 25% of the trading turnover for 10 of the 12 Nifty Bank Index stocks, making the firm by far the single largest net buyer. As Jane Street sold call options and bought puts, it amassed a bearish position that represented 7.3 times the size of its long cash and futures bets, according to the regulator. Jane Street is expected to argue that the high retail options demand created a gap between prices implied by the options and those reflected by the shares, and the firm sought to close it through a standard arbitrage trade, the people familiar said. The retail demand was so large that only 10% of it could have been hedged — partial hedging being a common practice among derivatives market makers internationally, the firm is expected to say. In the afternoon, Jane Street sold the stocks over more than three hours, spreading out its hedging to protect against settlement-price uncertainty as the options were about to expire, also a typical tactic globally, the people said it will argue. SEBI did not respond to a request for comment. Huge Turnover Retail traders' enthusiasm for options has helped turn India into the world's biggest market for listed derivatives by contracts traded, with turnover of more than 300 times that of cash equities. Global trading firms have used their capital and technological edge to profit from that large imbalance, but local investors have cumulatively incurred billions of dollars in losses, leading the regulator to crack down on the trading frenzy. Critics of Jane Street say the sheer size of its positions built up over a short time would have given the firm market-moving power, even if the trades were within regulatory limits. Alexander Gerko, the billionaire founder of rival XTX Markets Ltd., has challenged Jane Street to show that its India trading strategy was 'legit' by proving it would work better after scaling it down by a factor of a 100. 'Any 'normal' strategy works worse as it scales up, due to market impact, unless your strategy IS market impact,' he wrote in a LinkedIn post earlier this month. The regulator's interim order presented serious allegations and a 'compelling narrative,' though it is not certain that Jane Street acted inappropriately based on the initial findings, said Abhiraj Arora, a Mumbai-based partner at law firm Saraf and Partners who once worked at SEBI's surveillance and investigations department. Arora, who isn't involved in the case, said too harsh a crackdown and excessive surveillance of market makers could lead to wider bid-ask spreads, poorer trade execution and increased price swings. The Jane Street case ultimately 'serves as a significant test for India's regulatory framework and its capacity to oversee increasingly complex global trading practices,' he said.
