According to Indian regulators, every trading day Jane Street would:
1) buy large volumes of stocks and/or stock futures that are part of an index tracking India’s banking sector, early in the day,
2) subsequently place large options trades, betting that the index would decline or volatility would spike later in the day, and
3) later in the day, cash out of the large long positions, dragging the index lower, making far more money on the options trades than on the long positions.
Jane Street can and likely will claim the firm was only arbitraging away pricing inefficiencies, nothing more, nothing less. It was just business as usual, etc., etc.
However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.
When I worked at Scotttrade in 2010, I vividly remember my coworker telling me that this is what they did with the money too. I remember being surprised to hear that it flowed out in the morning and flowed back in in the evening. I never understood why that would make sense till I read your comment here.
It’s all hearsay; I’m just reporting what I heard. I don’t know the implications of it, but maybe this isn’t exactly uncommon behavior, even if it’s market manipulation.
The coworker said that the money flowed overseas too, if that helps contextualize it. No SEC, no problem, right?
Looks like Jane Street is an American firm, so, this all lines up and corroborates what you’re saying. What we’re seeing is probably the first time a government other than the US has reacted to this behavior.
Seems pretty straightforward depending on what large means here. When I worked in an algorithmic execution business of a broker, we had to always cap our order size as a percentage of average trade size and also cap our participation so we couldn’t ever be more than a certain % of the total market volume. This was precisely so that we wouldn’t ever push the market in the way JS are accused of doing here.
If you’re trading a large % of the market volume or your orders are large relative to anyone else, you can’t claim to be arbitraging as you are executing way beyond the capacity of any kind of arb. You’re just doing the old fashioned abusive market corner in fancy clothing.
Bloombergs Matt Levine does a good analysis of this and comes to the conclusion that the example the SEBI gives looks a lot more like arbitrage than manipulation. They were selling zero day options to customers and hedging with the underlying stock, which reduced the cost of the options to customers (whilst making a ton of money).
> The difference can be subtle, and I often joke that the difference between legitimate trading and manipulation is whether you send your colleagues an email saying “lol I sure manipulated that market.”
> However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.
I am unsure that the US SEC would agree with you. Buying and selling "a lot" is not clearly market manipulation in the US.
Finally, in my view the India SEBI rules are insanely vague and are written to grant a lot of leeway to the regulator.
The real problem that no one is talking about: Why is India allowing its derivatives markets to explode? An estimated NINETY percent of retail derivs "investors" (I prefer the term "gamblers") lose money in India. Lots of these loses are gains for foreign banks and hedge funds. India: What the hell are you doing!?
My understanding is you need to be able to actually the market to be called market manipulation (e.g. pump-and-dump). If Jane Street alone can move the market in 1), it seems like the Indian stock market is not really liquid...
Irony is that jane street hires from prestigious Indian schools too, for pretty obscene salaries. These salaries get hyped and celebrated over newspapers.
I’m not sure you are seeing it clearly..or have any trading experience whatsoever. They took substantial risk. There is always someone bigger so if they were wrong they could have been buried. Then they reversed. If there are allegations of insider trading or collusion or something else then I’m ready to pile on but I don’t see anything here.
> However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation.
Everything is public. How is Jane Street manipulating the markets? Feels more like the Indians are sore losers because they couldn't see the patterns that Jane Street did and they lost some money. They should up their game, not punish the winner.
Unsurprising that unethical but "righteous" crooks like SBF and his pals came out of that place.
I imagine Jane Street will also justify this with some EA bullshit, or like Soros during the 97 crisis just say "someone would do it ; may as well me".
I never quite understood why market manipulation is illegal. If market participants make emotional or irrational decisions detached from fundamentals, it should be on them.
> Jane Street sued Millennium, Schadewald and Spottiswood in April [2024], claiming the two traders had taken an “immensely valuable” trading strategy with them. It later emerged at a court hearing that the strategy involved India options and had generated $1 billion in 2023 profits for Jane Street.
I'm amazed they managed to move firms. Suppose you know how the strategy works, and it's like what SEBI says.
1) How do you approach mlp? They don't just give you an account, they have risk officers, compliance officers, and general strategy due diligence.
2) If you manage to get past it, what then? Say mlp just asks some superficial questions and sees the dollar signs. Are you going to do the same thing? You have to think the compliance people will complain, surely?
3) So maybe the strategy they actually approached with was a parasitical strategy? If you know which stocks will be bought and sold by JS, maybe you do jump in first? Especially as you'll know particulars like when it happens, which stocks are selected, and how to spot them.
I remain bemused that they described this as an "unintuitive strategy which required significant back testing etc".
As I read it they were just smashing underlyings to move the close price and profit from larger derivative positions... which is the most intuitive strategy I ever heard. There must be something more here right?
Having formerly worked for an NYSE Specialist firm the role of market making is incredibly important, but many large-scale HFTs today operate in ways that either stretch the legal boundaries or exploit regulatory gaps. Many practices arguably amount to market manipulation in spirit, even if technically legal. Candidly, the regulators are either too lazy, stupid, ill equipped or uninterested to do anything about it.
SEBI’s bold move, at the expense of appearing unfriendly to foreign institutions, is commendable. I really hope that the SEC will wake up from its slumber and start investigating the tactics used by Citadel and its kind.
Who makes the markets in India? Is it the big Indian banks, or do these multinational trading firms act as market makers? If so, how do they distinguish between their trading and market making activities? It seems like it'd be relatively easy to rig a market (control the price) with enough capital and management over the trading.
>but many large-scale HFTs today operate in ways that either stretch the legal boundaries or exploit regulatory gaps. Many practices arguably amount to market manipulation in spirit, even if technically legal.
> India retail investors make up 35% of options trades. Institutions, seeking to hedge their risk or profit for their companies’ accounts, handle the rest. Regulators are alarmed that regular folk are bypassing the tried-and-true way to build wealth: buying and holding stocks and mutual funds.
> Instead they’re engaging in pure speculation. The average time an Indian trader holds an option is less than Instead they’re engaging in pure speculation. The average time an Indian trader holds an option is less than 30 minutes, according to data from mutual fund provider Axis Asset Management Co. “If you want to gamble, if you need diabetes and high blood pressure, then go into this market,” Ashwani Bhatia, a board member on the nation’s top stock market regulator, said last year.
I’d say that those claiming it’s a simple or classic strategy have very little idea of how stock exchanges operate in second and third-world countries. Getting permission to trade as a foreign institutional investor requires a significant amount of legal work and, umm, bureaucratic investment. Almost all stock exchanges out there use off-the-shelf trade surveillance software, which means the exchange will flag this, and so will the SEC-equivalents, on every trade they make. There’s also a proactive element to this in the form of writing reports and asking for explanations regarding the trades. There’s no way these trades happen without someone noticing.
The thing is, Jane Street still consists of some of the smartest people in the room. Getting into markets like this and making large-volume trades is no easy feat. We often equate algorithmic prowess with investment intelligence, but in reality, navigating the legal and regulatory requirements is the only edge you have in trading these days. It’s very hard to figure this out as an international firm. Jane Street did it, and they deserve kudos for it. Trust me, if it were an Indian firm making the same moves, you wouldn’t have heard about it.
You’ll see Jane Street will pay a fine and come out on top. This is because they plan for these things with the expectation that regulators will make a scene about it.
The blog from Financial Times has a much better write-up, including a link to the official 100+ page legal order from SEBI: "The details of Jane Street’s alleged ‘sinister scheme’ in India": https://www.ft.com/content/41c4789a-afa6-462c-a6ea-9704c2ba7...
> SEBI said that the “intensity and sheer scale” of their intervention, and the rapid reversal of their trades “without any plausible economic rationale, other than the concurrent activity in and impact on their positions in the BANKNIFTY index options markets,” was manipulative.
> "without any plausible economic rationale..."
I had a bit of a laugh at this. I thought the rationale was to fuck the counterparties as hard as possible?
It would seem like Jane Street being allowed to operate in this market is like bringing an anti-material rifle to a pillow fight.
>While these actions were not a breach of any regulation, SEBI said that the “intensity and sheer scale” of their intervention, and the rapid reversal of their trades “without any plausible economic rationale, other than the concurrent activity in and impact on their positions in the BANKNIFTY index options markets,” was manipulative.
I don't get the basis for regulatory action if they weren't in "breach of any regulation." Not a fan of financial skullduggery, but it does seem important for government agencies to play by explicit, non-arbitrary rules. (Or maybe this article just got it wrong?)
Anyone have any recommendations for books/papers/articles (math heavy is fine) that give a good steel man argument for why options and derivatives are beneficial?
I can wrap my head around why/how options for physical commodities give price stability for sellers and buyers. But at first glance I struggle to see how derivatives are beneficial in the equity markets. The argument is that derivatives increase market efficiency (more accurate pricing) over what just a simple buy/sell market would give you right? But how valuable is this increased efficiency? Obviously is super valuable to the people who work in finance, but how valuable is it outside of that context?
As someone in the industry, I have many times asked people how regulators actually track margin / levered exposure and it seems like they basically don't.
Any situation where you can make bets on the market that pay off larger than the cost of the market it will lead to manipulation. This is no different than paying off the referee or the star players etc ... The only thing keeping this from happening is the threat of the law really or any adversarial change in incentives. But once a player or collective of players gets big enough, it seems likely this is happening even if it is not coordinated centrally.
It would be interesting if more people started to get interested in this problem.
I have seen defi stuff that literally bakes in the cost of moving price into the smart contract "market" which is interesting too but at the time of reading (a few years ago) I didn't see direct discussion of the boundaries of manipulation incentives in that domain. Would be interested to hear if anyone is deep in that rabbit hole recently.
I was a quantitative trader for an options trading firm in the early 2010s. We were a very technical firms and hedges options trades within minutes. So, a trade with us would shift the stock price quickly. Even with that, we got scammed by traders doing this kind of thing on single stocks. My boss said that he complained to the broker and SEC, but nothing happened. We wrote code to limit our losses from this kind of scam.
We were probably able to find it because we did hedge quickly. Hedging costs money (trading fees, 1/2 spread) so some firms did it less often. We heard that Bear-Sterns only did it 1 time per day (around 4pm when spreads were small and over-night movement risk was nigh). They wouldn’t have caught this scam.
I am shocked by the size of the retail index options traders. They are selling put options naked without any underlying hedges and getting fleeced as a result.
Two strategies are detailed with trades:
1) expiry day price discrepancies between index options and underlying
2) expiry day painting the close
[+] [-] cs702|8 months ago|reply
1) buy large volumes of stocks and/or stock futures that are part of an index tracking India’s banking sector, early in the day,
2) subsequently place large options trades, betting that the index would decline or volatility would spike later in the day, and
3) later in the day, cash out of the large long positions, dragging the index lower, making far more money on the options trades than on the long positions.
Jane Street can and likely will claim the firm was only arbitraging away pricing inefficiencies, nothing more, nothing less. It was just business as usual, etc., etc.
However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.
[+] [-] naveen99|8 months ago|reply
[+] [-] conditionnumber|8 months ago|reply
If options & futures are more liquid than the underlying, someone will be tempted to nudge the underlying.
Bond ETFs and their options chains seem like another locale where this could happen.
[+] [-] sillysaurusx|8 months ago|reply
It’s all hearsay; I’m just reporting what I heard. I don’t know the implications of it, but maybe this isn’t exactly uncommon behavior, even if it’s market manipulation.
The coworker said that the money flowed overseas too, if that helps contextualize it. No SEC, no problem, right?
Looks like Jane Street is an American firm, so, this all lines up and corroborates what you’re saying. What we’re seeing is probably the first time a government other than the US has reacted to this behavior.
[+] [-] seanhunter|8 months ago|reply
If you’re trading a large % of the market volume or your orders are large relative to anyone else, you can’t claim to be arbitraging as you are executing way beyond the capacity of any kind of arb. You’re just doing the old fashioned abusive market corner in fancy clothing.
[+] [-] Den_VR|8 months ago|reply
People may recall the matter involving Adani Group. https://hindenburgresearch.com/adani-update-sebi/
[+] [-] Workaccount2|8 months ago|reply
[+] [-] Horffupolde|8 months ago|reply
[+] [-] helsinkiandrew|8 months ago|reply
> The difference can be subtle, and I often joke that the difference between legitimate trading and manipulation is whether you send your colleagues an email saying “lol I sure manipulated that market.”
https://www.bloomberg.com/opinion/newsletters/2025-07-07/jan... (https://archive.ph/20250708012725/https://www.bloomberg.com/...)
[+] [-] throwaway2037|8 months ago|reply
Finally, in my view the India SEBI rules are insanely vague and are written to grant a lot of leeway to the regulator.
The real problem that no one is talking about: Why is India allowing its derivatives markets to explode? An estimated NINETY percent of retail derivs "investors" (I prefer the term "gamblers") lose money in India. Lots of these loses are gains for foreign banks and hedge funds. India: What the hell are you doing!?
[+] [-] Gathering6678|8 months ago|reply
[+] [-] Mo3|8 months ago|reply
[+] [-] never_inline|8 months ago|reply
[+] [-] cs702|8 months ago|reply
After reading the Matt Levine piece posted by https://news.ycombinator.com/item?id=44497566 , I'm no longer sure this is market manipulation.
The devil is in the details, and the details disagree with my initial take, so I'm changing my mind.
[+] [-] futevolei|8 months ago|reply
[+] [-] dgfitz|8 months ago|reply
[+] [-] stefan_|8 months ago|reply
[+] [-] ExoticPearTree|8 months ago|reply
Everything is public. How is Jane Street manipulating the markets? Feels more like the Indians are sore losers because they couldn't see the patterns that Jane Street did and they lost some money. They should up their game, not punish the winner.
[+] [-] vovavili|8 months ago|reply
[+] [-] never_inline|8 months ago|reply
[+] [-] theirjehdirhdij|8 months ago|reply
I imagine Jane Street will also justify this with some EA bullshit, or like Soros during the 97 crisis just say "someone would do it ; may as well me".
[+] [-] unknown|8 months ago|reply
[deleted]
[+] [-] olalonde|8 months ago|reply
[+] [-] walterbell|8 months ago|reply
> Jane Street sued Millennium, Schadewald and Spottiswood in April [2024], claiming the two traders had taken an “immensely valuable” trading strategy with them. It later emerged at a court hearing that the strategy involved India options and had generated $1 billion in 2023 profits for Jane Street.
[+] [-] lordnacho|8 months ago|reply
1) How do you approach mlp? They don't just give you an account, they have risk officers, compliance officers, and general strategy due diligence.
2) If you manage to get past it, what then? Say mlp just asks some superficial questions and sees the dollar signs. Are you going to do the same thing? You have to think the compliance people will complain, surely?
3) So maybe the strategy they actually approached with was a parasitical strategy? If you know which stocks will be bought and sold by JS, maybe you do jump in first? Especially as you'll know particulars like when it happens, which stocks are selected, and how to spot them.
[+] [-] Ntrails|8 months ago|reply
As I read it they were just smashing underlyings to move the close price and profit from larger derivative positions... which is the most intuitive strategy I ever heard. There must be something more here right?
[+] [-] brcmthrowaway|8 months ago|reply
[+] [-] CPLX|8 months ago|reply
I wonder to what degree the lawsuit is what got this on the radar of the Indian authorities. Maybe they should have listened to Stringer Bell.
[+] [-] balderdash|8 months ago|reply
[+] [-] sheepscreek|8 months ago|reply
[+] [-] state_less|8 months ago|reply
[+] [-] gruez|8 months ago|reply
Can you expand on this?
[+] [-] thinkingtoilet|8 months ago|reply
Or it's their friends doing it and they're not uninterested, they're very interested in ensuring it continues.
[+] [-] miohtama|8 months ago|reply
> India retail investors make up 35% of options trades. Institutions, seeking to hedge their risk or profit for their companies’ accounts, handle the rest. Regulators are alarmed that regular folk are bypassing the tried-and-true way to build wealth: buying and holding stocks and mutual funds.
> Instead they’re engaging in pure speculation. The average time an Indian trader holds an option is less than Instead they’re engaging in pure speculation. The average time an Indian trader holds an option is less than 30 minutes, according to data from mutual fund provider Axis Asset Management Co. “If you want to gamble, if you need diabetes and high blood pressure, then go into this market,” Ashwani Bhatia, a board member on the nation’s top stock market regulator, said last year.
https://economictimes.indiatimes.com/markets/options/indias-...
[+] [-] landl0rd|8 months ago|reply
[+] [-] disposablese|8 months ago|reply
The thing is, Jane Street still consists of some of the smartest people in the room. Getting into markets like this and making large-volume trades is no easy feat. We often equate algorithmic prowess with investment intelligence, but in reality, navigating the legal and regulatory requirements is the only edge you have in trading these days. It’s very hard to figure this out as an international firm. Jane Street did it, and they deserve kudos for it. Trust me, if it were an Indian firm making the same moves, you wouldn’t have heard about it.
You’ll see Jane Street will pay a fine and come out on top. This is because they plan for these things with the expectation that regulators will make a scene about it.
[+] [-] throwaway2037|8 months ago|reply
[+] [-] bob1029|8 months ago|reply
> "without any plausible economic rationale..."
I had a bit of a laugh at this. I thought the rationale was to fuck the counterparties as hard as possible?
It would seem like Jane Street being allowed to operate in this market is like bringing an anti-material rifle to a pillow fight.
[+] [-] thedailymail|8 months ago|reply
I don't get the basis for regulatory action if they weren't in "breach of any regulation." Not a fan of financial skullduggery, but it does seem important for government agencies to play by explicit, non-arbitrary rules. (Or maybe this article just got it wrong?)
[+] [-] wfleming|8 months ago|reply
[+] [-] MichaelNolan|8 months ago|reply
I can wrap my head around why/how options for physical commodities give price stability for sellers and buyers. But at first glance I struggle to see how derivatives are beneficial in the equity markets. The argument is that derivatives increase market efficiency (more accurate pricing) over what just a simple buy/sell market would give you right? But how valuable is this increased efficiency? Obviously is super valuable to the people who work in finance, but how valuable is it outside of that context?
[+] [-] nobodywillobsrv|8 months ago|reply
Any situation where you can make bets on the market that pay off larger than the cost of the market it will lead to manipulation. This is no different than paying off the referee or the star players etc ... The only thing keeping this from happening is the threat of the law really or any adversarial change in incentives. But once a player or collective of players gets big enough, it seems likely this is happening even if it is not coordinated centrally.
It would be interesting if more people started to get interested in this problem.
I have seen defi stuff that literally bakes in the cost of moving price into the smart contract "market" which is interesting too but at the time of reading (a few years ago) I didn't see direct discussion of the boundaries of manipulation incentives in that domain. Would be interested to hear if anyone is deep in that rabbit hole recently.
[+] [-] monkeyelite|8 months ago|reply
It’s just political. Who is allowed to manipulate and who pays their dues to be able to.
[+] [-] kragen|8 months ago|reply
> While these actions were not a breach of any regulation,
I guess this is why you shouldn't do business in India: you can get retroactively punished for breaking rules the regulators wish they had made.
[+] [-] mdnahas|8 months ago|reply
We were probably able to find it because we did hedge quickly. Hedging costs money (trading fees, 1/2 spread) so some firms did it less often. We heard that Bear-Sterns only did it 1 time per day (around 4pm when spreads were small and over-night movement risk was nigh). They wouldn’t have caught this scam.
[+] [-] throwaway314155|8 months ago|reply
[+] [-] bwfan123|8 months ago|reply
Two strategies are detailed with trades: 1) expiry day price discrepancies between index options and underlying 2) expiry day painting the close
[+] [-] randall|8 months ago|reply
[+] [-] neximo64|8 months ago|reply
[+] [-] Zacharias030|8 months ago|reply