India, stop big trader Jane Street: 'Manipulates the derivatives market'

The documents made public by Sebi focus on 18 episodes, the most sensational of which dates back to 17 January 2024 and earned Jane Street a capital gain of USD 86 million. According to the Indian regulators' reconstruction, in the first two-and-a-half hours of a session that had opened with the Banknifty banking sub-index falling, Jane Street traders aggressively bought into the futures and spot market for the underlying securities, driving up prices and attracting flocks of retail investors.

At the same time, they would 'bet' on a fall in the index, hoarding put options (which give the right to sell a security at a certain price even when its market value is lower), which became increasingly cheap as the index climbed, until they created a position 7.3 times larger than the bullish position in cash and futures.

At that point, they would start selling, getting rid of the securities they had bought in the first part of the session, causing the Banknifty index to plummet and accumulating losses, but far less than the gains secured by the concomitant surge in the value of the put options, partly exercised and partly sold at a higher price than the purchase price.

According to Sebi, the trading patterns used by Jane Street constituted 'serious manipulation of stock prices and benchmark indices for illicit gains, to the detriment of several hundred thousand small investors'. The Indian authorities had already warned Jane Street to avoid such practices in January. The investigation reportedly found, however, that the accused strategy was still being used in May.