Jane Street barred from Indian markets as regulator freezes $566M
cnbc.com498 points by bwfan123 2 days ago
498 points by bwfan123 2 days ago
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.
Ok, but what moron was selling them the puts , and not seeing the pattern after a couple of days of this ? Sebi logic seems questionable.
I assume the moron in question was using Black-Scholes or some similar formula to price those options, and refused to update their prior when they lost money day after day. This happens quite a bit in derivatives markets.
> and refused to update their prior when they lost money day after day
The market takes money from people with incorrect beliefs about economics and gives it to people with correct beliefs. ~~What is the problem here?~~
On second read, I think the parent was just intending a factual statement, which I am willing to agree with.
Disassociates the value of the underlying assets which devalues the currency. Probably why regulatory bodies had to get involved.
The market takes money like a bully most of the time. Any other belief is as theoretical as communism vs practice.
If you're selling millions of dollars of options you're taking an extremely willing risk, not getting bullied.
Edit: Reading more about this, it looks like the counterparty is often a bunch of retail investors doing quick trades hoping the stock swings one way or the other, and that's not bullying that's gambling.
I agree with your edited point, and in response to sentiments I saw earlier in the thread—even gamblers deserve nominal assurances against cheating. My two cents, which I personally will be investing in wishes via my local wishing well, to which I’ve connected a dedicated fiber link to power my high-frequency algorithmic wish arbitrage desk.
Black-Scholes is rarely used to actually price options. It's most commonly used to back out what the current implied volatility is.
Things like Black-Scholes (using past volatility of the underlying to model the probability distribution in the future) are often used by market makers to price options, but the vanilla version never is.
Any market maker pricing options with Black-Scholes won't be a market maker for long.
Black-Scholes is just a customer-facing description of the option (i.e, it provides greeks that everyone can understand). But it isn't used as a starting point.
In practice, MM will back out what the implied volatility is from current prices. Then a stochastic volatility model is calibrated against that.
But why would they refuse to? They're there to make money too, after all.
Maybe they have buddies at SEBI who can freeze their counterparty's assets and return the half-billion dollars they lost back to them.
That's not really how it works, the market making firms would essentially have to update their vol curves in response to that signal (BS being essentially just a coordinate change from price to volatility).
I think the point is that retail investors were selling the puts, they predictably sold every day (or more likely, they predictably bought calls which is almost equivalent), and there were no other sophisticated market makers in the market.
That changes the description of part 2 to "subsequently experience retail investors placing large options trades with them" which is much more defensible market making behaviour - their early buying was in anticipation of later demand and really did involve taking a risk.
The truth is probably somewhere in between.
To add to this, that behaviour would typically be OK in the US, with a good compliance department to keep you away from the worst of the grey areas.
If the SEC did investigate you for this, an important part of the case would turn on the extent to which your actions were "bona fide market making". And the regulator would also be more introspective about the market structure that allowed this to happen - why is there only one market maker? How did we allow a derivatives market much more liquid than the underlying?
Huh? I don't think the SEC would (just) apologize for letting you get away with manipulation of a significant portion of the US index funds just because they should have noticed you sooner.
Yeah that seems like it should push the premium higher. Even if it's some institution with very bad quantitative models eventually the careless put writers should run out of shares/capital to secure the puts with and get liquidated.
> what moron
Presumably retail options traders and less sophisticated firms
Yeah, I think volatility in the indian market was way too low, and Jane street just juiced it. normally that would be a losing proposition, but too many existing players were short volatility habitually… answer is not to kick Jane street out, but to enjoy the taxes Jane street pays on the gains…
Low volatility is good for everyone engaged in long term asset management. Jane Street just found a way to make everyone else less money while making a small amount for themselves.
> Low volatility is good for everyone engaged in long term asset management.
According to who?
There are plenty of pension funds nowdays that have people specialized in picking up mid sized companies after big drops.
it’s a known effect. Without going into details here, you can calculate first crossing time of a barrier in a stochastic process and observe that often the first crossing time decreases as the volatility increases. From there you can set one barrier at 0 (default) and draw your own conclusion.
I'm reminded of how the UK financial regulator banned "binary options" trading, since this was nearly always a scam run against unsophisticated retail investors who wanted to gamble and lost the majority of their "investment".
(one of the Yes Minister irregular verbs: I am providing liquidity to the market, you are long vega, he is a degenerate gambler)
Don't know about Jane Street, but that sounds like a general problem.
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.
> If options & futures are more liquid than the underlying, someone will be tempted to nudge the underlying.
Why is the adjective "more" important here? Even if less, the opportunity to profit is still good, assuming that one chooses the path of market manipulation.
What matters is the volume rather than the liquidity per se, but the two are generally pretty well correlated. The point is that moving a market costs money, making a trade moves the market against that trade, so even if someone is deliberately trying to move a market they'll pay more than they could ever hope to recoup. The exception is when there's a derivative market that has more volume than the underlying - in that case profitable manipulation becomes possible, as you can spend to move the underlying, losing money, but making more money on the derivatives where you'd bought the other side.
Heavy gamma exposure also helps move the market by forcing dealers to hedge in some particular direction.
During the memestock craze, retail traders were able to create a gamma squeeze due to this forced hedging.
https://www.nasdaq.com/articles/what-gamma-squeeze-understan...
And it was glorious! MMs sure learned though. Premiums have exploded now.
> What matters is the volume rather than the liquidity per se
> The exception is when there's a derivative market that has more volume than the underlying
> What is the difference between volume and liquidity for the purpose of this discussion?
You're the one asking "Why would liquidity matter here?", you tell me. Like I said, they're correlated well enough that it doesn't really matter as far as I can see.
> This is wildly rare in public markets.
Yes, but it's what happened here.
I have a suspicion this has been happening with a particular MAG7 stock these last few months, but I can't fully convince myself such a large stock can be manipulated like that.
Of course large stocks can be manipulated like this. But there is also normal oscillation, repeatable human psychological behavior (e.g. momentum, mean reversion), and just crowd murmuration. Be careful using your eyes to gleam patterns from graphs; you may find if you try to monetize these they vanish before you.
At least one of those stocks tends to have a comparatively thin order book.
Google tells me:
> Coined in 2023, the group consists of Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
Tesla
> but I can't fully convince myself such a large stock can be manipulated like that.
I have the same initial reluctance to believe it that you do, but less so when I remind myself that we live in a world where the Social Security Administration sent out a mass email praising the passing of the "big beautiful bill".
I think our built-up understanding of how the US government functions at a baseline has not caught up to recent events. Especially in regards to how much regulatory bodies are doing their traditional jobs vs being forced to sit on their hands, or in some cases just not even existing anymore.
It’s tough to wrap your head around such big stocks being manipulated. I found that using mailsAI to track trends helped me see patterns I wouldn’t have noticed otherwise. It made the whole situation feel a bit more clear and manageable.
As someone living in a country with very weakened democracy, getting emails from the government was the point I realized things were really messed up. If this is now happening in the USA, well, good luck.
Thanks, we're gonna need it (the luck, that is).
We got email from a government agency that is weakened by the passage of a new law celebrating the passage of said law, so yeah that's not looking great.
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.
I'm sure they're doing it domestically too, but due to the relative size of the markets and currency conversions what amounts to a serious disruption in the Indian stock market would just be background noise that gets ignored in a US market.
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.”
https://www.bloomberg.com/opinion/newsletters/2025-07-07/jan... (https://archive.ph/20250708012725/https://www.bloomberg.com/...)
Thank you for sharing this. Levine is usually pretty accurate about this stuff. I've changed my mind. See my updated response here: https://news.ycombinator.com/item?id=44499330
EDIT:
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.
Maybe, but given the reputation of Indian regulators I’m skeptical Jane Street’s only sin was the alleged market manipulation.
People may recall the matter involving Adani Group. https://hindenburgresearch.com/adani-update-sebi/
Seems presumptive to slander an entire nations regulatory group on a single/couple of examples. By that metric the regulatory group in the US is completely bought out since they let 2008 happen.
There's a difference between "letting" something happen and actively doing something – it shows very different intentions. The events of 2008 were also caused by a cascading system failure involving lots of different components, which are hard for a single human to fully understand. The actions of the Indian regulator in the Adani case are much simpler, and their motivation is straightforward.
One rotten regulator doesn’t mean you get to view the entire Indian regulatory environment as unreliable though. It’s the 4th/5th largest financial market in the world.
Is SEBI not the key regulator in this area?
To say it plainly, SEBI has been exposed for their selective enforcement on high-profile entities. If Jane Street’s in trouble with SEBI then it’s only because they failed to secure the same privileges as Adani, or Karvy, or Ramkrishna, or Sapre, or Kamath.
Does the size of a market have some positive impact on the reliability of its regulatory body that I am not aware of?
Slander? Now there’s a strong word.
Examples of the 2023-2025 activities of the Indian securities regulator SEBI seem pretty relevant to current news involving SEBI here in 2025. Which is the topic of discussion. Whatever US regulators were doing in 2008 has nothing to do with this.
> Seems presumptive to slander an entire nations regulatory group on a single/couple of examples.
> By that metric the regulatory group in the US is completely bought out since they let 2008 happen.
Not sure that makes the point you think it makes.
And this is what some of the brightest minds in the country are being harvested to develop. One of the biggest ongoing travesties.
Well that and increasing Daily Active Users and ad revenue on social media and video platforms.
But those have a tangible return to society that people flock to. Almost the entirety of Google products is open to anyone on Earth to just open up an use because that ad model is so successful. People click high value ads and it covers to cost of video distribution to anyone with an cell phone and wifi.
Jane street on the other hand is arbitraging against regular folks money, so they can distribute the gains to their select high value clients. There is no free office productivity suite and limitless "How to repair cell phones to start your own business" videos distributed to everyone for free.
In a way, they are doing opposite functions. Ad media takes from people who buy stuff and gives to people who don't (or cant't) buy anything. Jane street and their ilk take from regular people and give to those who have everything already.
Your "ad" people are rotting the brains of entire generations by addicting kids using many different tactics (insta, YouTube shorts, TikTok....) . Please spare us the moral judgement.
"brain rot" is a subjective criticism. objectively speaking, the kids are making art and sharing it with each other. it's at worst an extension of the entertainment industry. you can not like the art, but it's at least art.
the finance industry doesn't produce anything of value. it just turns $1 into $2 and liquidates productive industries.
This seems like a play on "The best minds of my generation are thinking about how to make people click ads. That sucks." - Jeff Hammerbacher
But is it really? Is buying a lot of stock and selling it later really something that takes a genius?
Cash rules everything around me has been the slogan for this generation. Why wouldn’t they chase the biggest dollar?
By this generation please clarify you mean the ones that started this campaign in the 70s, not the subsequent lost generations of people who can barely envision owning a home with a graduate degree in engineering
here in the coastal West US, a mid-career policeman does not make enough money to buy a house and have children. A credentialed school teacher does not make enough money to pay RENT in many desirable places, and nowhere near enough to have children of their own and buy a house.
Major city police are typically some of the highest paid public employees of any area. Often with a more generous pension tier than what is given to other public employees. Ie starting pay for SFPD is $115k-$164k https://www.joinsfpd.com/entry-level-program
164k isn’t enough to buy a home in SF.
starting pay.
Also, it's 164k a year, not ever. So whether or not it can buy a home in SF kind of depends on how long and how fast you save.
Come on. How can you not be able to buy a house with an engineering degree? It's one of the best degrees out there.
Define buying a house.
Here in the UK:
Average mechanical engineer salary (mid-career) = £45k Max mortgage based on salary = ~£200k Average house price = ~£292k
-> Most people with an engineering degree cannot buy a house
Most people with a mechanical engineering degree cannot buy an _average_ house - not quite the same
Extrapolating your answer, Most mechanical engineering firms are not in the same areas as the cheap houses. So on your point, most mechanical engineers cannot buy a house that they can live in and get to work.
There are several counter arguments here.
Most people with an engineering degree are probably in a relationship, so they don't need to buy a house on a single salary.
There are plenty of houses for sale below the average price, just as there are plenty above.
Buying isn't necessarily the best option anyway. House price returns in the UK are somewhat below stock market returns, so as a pure investment it doesn't make sense. Unfortunately, we have the narrative in the UK that we should aspire to own houses, but that doesn't mean it's necessarily correct!
> Most people with an engineering degree are probably in a relationship
This doesn't feel like a valid assumption.
Over half the UK adult population is married. According to the ONS, 61% of the population aged 16 or above is living with a partner. [1]
Unless the demographics of those with engineering degrees is significantly skewed towards singles, this feels like a very valid assumption. Of course, you might have access to better statistics by profession.
[1] https://www.ons.gov.uk/peoplepopulationandcommunity/populati...
That means you can buy a house a little below average. With a spouse straight up can.
For instance, buying a house in Bay Area. Realty around NYC is not very affordable, too. But such places is where the engineering jobs are.
If you get a real engineering degree instead of computer science slop, then your options for where to live and work (without relying on WFH trends going the right way for you) open up substantially.
CS is a real degree, but it's more math than engineering. CS and engineering have nothing in common beyond math and physics prerequisites.
a real computer science degree from a good school is a real engineering degree. And you can do a lot of things with it. Pivot quickly.
an "information technology" degree that teaches React and stuff is not engineering.
This is the last website I would imagine people complaining they can't buy a house.
>This is the last website I would imagine people complaining they can't buy a house.
Even Senior+ level SWEs at FAANG's in Silicon Valley have trouble buying homes there. The costs are absurd.
I guarantee you, it's harder in 90% of places in the world (accounting for buying power/price of real estate). You guys don't understand our privilege.
You can buy an f'ing house. In places like Ukraine people make $100/month and apartments are $50k(and I'm talking before the war). There, it's LITERALLY impossible.
What people here are describing is that things should be better, and I agree, but words matter.
Google tells us:
In 2021, the median annual salary for software engineers in Ukraine ranged from $30,000 to $48,175, depending on location and experience. Some specific figures include $30,000 in Kyiv, $29,000 in Lviv, and $24,000 in Kharkiv. Remote software engineers in Ukraine had a median salary of $48,175.
It's quite below the EU median, but definitely not $100 a day.
BTW $100 a day is $12.50 a hour, which is more than the federal minimum wage in the US ($7.50 or so), and only $4 below California's minimum wage, $16.50.
> an "information technology" degree that teaches React and stuff is not engineering.
Lol, is that really what you think I meant by real engineering? You have tunnel vision for computer tech.
i don't know cause there's a ton of nonsense here so explain what you meant. and also what not being able to buy a house means.
Because they literally don’t need to, there is so much more in life than money. Current tech culture is garbage in terms of defining success, whole social media is filled with posts defining success as working 24/7, exploiting people around you and making exorbitant amounts of money.
A hardworking and smart person in tech really doesn’t need to try hard or sacrifice much to live a comfortable life in terms of finances. Hard part is the rest of the things in life really.
Dollar, dollar bill, y'all.
Those with the power will use it. So much for the "invisible hand" making everything "fair and efficient".
The criticism is largely of the system. The mechanism by which capitalism can improve society is by having pay be a incentive to create things that improve society, which people will then choose to purchase.
When the incentive instead rewards "how much money can you extract from others without improving their lives at all" we've headed in a very dangerous direction. You get the "we can make more money by making our product more aggravating" motivation that leads to dark patterns and all sorts of problems.
This sort of market manipulation stuff is just a very clear example of this pattern. Smart people not building useful products but instead fighting to crank a machine so that it spits more money in their direction.
> Smart people not building useful products
worse, those are the active smart people doing that.. for each one of them there are a hundred others trying to do everything and anything to become one of those.. its a pyramid. The competition between individuals is a feature. You bet it is on the lips of every one of those individuals their "top" credentials that sit them in that trading seat. In other words, for every quant geek on that trading group, there are a thousand other "almost top" people using their time, talent and effort to try to be one of those inner circle ones.
Brightest minds in the world from what I can tell. They are particularly sickening in the way they specifically target certain demographics to come and leech for them.
Imagine becoming highly educated and then just using that ability to cream off the output of people who labour every day producing things that are actually useful. The tragedy is all the signals from society are saying this ok. Nobody questions the money. I got excited thinking we would 15 years ago, but nobody cares.
I guess if you're bright enough to come up with a solution you could be like Satoshi, or you could just work for Jane Street and suck as much as you can before you die.
"I guess if you're bright enough to come up with a solution you could be like Satoshi, or you could just work for Jane Street and suck as much as you can before you die."
the outcome is the same. you're sucking money out of people.
So why can’t other players detect this behavior and trade with JS, removing their edge?
Most exchanges do not reveal counter-party information smaller than the broker level. So you wouldn't know just from looking at market activity the same person causing the large futures move was also taking large options positions.
Doesn't matter - see a pattern, exploit it - and in doing so, make profit yourself whilst reducing the pattern.
Simply look at the market patterns and make a profit, duh! Why doesn't everyone do that?!
Usually, everyone does do that, which is why only hard-to-detect patterns remain profitable. Not something obvious like "buy options in the morning and sell in the evening" as in this example.
But maybe Jane Street only traded like this on some days, so you would need to know whether they had done so before you could hope to exploit them.
> Simply look at the market patterns and make a profit, duh! Why doesn't everyone do that?!
I know your question was sarcastic, but not everyone is able to see patterns. And not every trader is as good as the other. Hence winners and losers.
The pattern was exploitable only on the specific days that Jane Street was allegedly manipulating. How would you have figured out, without counterparty information and before noisy sales start dragging down the index, that day X is a manipulation day?
How would you have identified that there's even such a thing as a manipulation day? Do you have a model that tells you the objectively correct number of days a non-manipulated index should be lower at close?
The other firms compliance departments
The other firms are not manipulating the market. They are just riding along the manipulator.
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...
> However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.
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!?
It’s legal gambling (same as the retail crypto and stock trades in the US). I’d expect that the legalisation of sports markets in the US has meaningfully moved exploitable punters out of the markets and into the bookmakers.
Isn't the figure of retail losing money on daily trading similar in other markets?
I think eToro disclosed that on their app, people using CFDs were losing money 76% of the time.
In the UK, unlisted derivs (CFDs, etc) dealers that target retail are required to display in print and TV adverts what percent of customers lose money. It is always way more than 50%!
I think the SEC would say it's about intent. If your intent for buying/selling is to impact the price rather than buying/selling the asset in question, then you are trying to manipulate the market.
The size question is important here due to the fact that large quantities are likely to influence price (and everyone knows this) so you might need an strong alternative explanation for your actions.
Given the intraday patterns in the US and other stock markets I doubt this is limited to India
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.
Both can be true:
- They were taking a substantial risk.
- They were manipulating the market.
“Manipulation” is what? You want to create a rule that says a firm can’t buy more than x shares/dollars/% in a certain amount of time? Or if it does it has to hold onto those shares for a minimum time? A firm should be able to buy as much as it wants, subject to its margin requirements, and then sell whenever it wants, be it one second, one minute, one hour, one day…later.
> 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.
They didn't exploit a pricing pattern, they created one, which is market manipulation.
> "While these actions were not a breach of any regulation"
^ quote from SEBI. Isn't market manipulation illegal pretty much anywhere?
Irony is jane street hires from prestigious Indian schools too, for pretty obscene salaries. These salaries get hyped and celebrated over newspapers.
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".
Hardly a sophisticated high tech HFT operation. Totally illegal of course, except in places that maybe don't have the regulatory rigeur.
Hardly a sophisticated strategy, indeed, but Jane Street was earning like $1B/year of profit on it, according to https://news.ycombinator.com/item?id=44483691
Someone has to pay for the OCAML maintenance
all that OCAML we only hire the smartest is often a veil for what is really a simpler operation that is borderline illegal. probably alot of employees dont even really understand the systems they work on
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.
While markets are used as a form of gambling, they also have a prosocial purpose, namely to allocate capital which improves the economy and society at large. Market manipulation increases market volatility and hence hurts efficient capital allocation, without some other benefit for the market. Besides that, it requires large amounts of capital to do, and hence can be effectively regulated.
Most of the stock market activity is secondary trading, which has little to do with allocating capital. Trading existing shares just redistributes ownership.
The stock market has a number of essential components without which it could not exist, all of which support it's role in allocating capital. If there was no secondary market to sell their stock to, someome might not invest in the first place. If there were or were not market manipulators cheating others out of money, that would make no difference as to whether someone invested in a company.
Secondary trading enables risk transfer, which is important for allocating capital.
Your first sentence is somewhat accurate, your second is not at all, specifically "just".
I didn't say stock markets don't serve a useful purpose. Regardless, my original point is simply that traders should focus on fundamental value, not try to guess what others are thinking. If they choose to play that game and get burned, that should be on them. There's no real necessity to regulate "market manipulation".
https://web.archive.org/web/20250519053752/https://www.bnnbl...
> 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.
A more straightforward explanation could be that the strategy is not market manipulation by conventional SEC thinking, and that this SEBI enforcement action is an unwelcome surprise rather than “damn they got us.”
The article, and the order it's based on, indicate that Jane Street continued this trade for months after being told in February of this year that they need to stop.
I could vaguely believe that you could hide some of the details by virtue of coming from a prop shop and saying it's some new angle for mlp.
Maybe they do have teams running prop style strategies but I would guess that if you snapped the book at a given second you'd probably miss the alleged secret sauce.
Crazy eh
Need to ask my mlp friends lol
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?
One thing to factor in is someone seeing you make this play & starting to buy up & sell high in morning shortly before you come in. So you need to factor in price points where you go through with this & where you don't
Also need to keep an eye on where you predict price is going naturally, don't want to be left fighting price uphill on wrong day
This is interesting. Anyone know what they offered these traders? Can't be more than Zucks 100mn offer!
He didn't actually offer anyone 100m, that was a bullshit number Altman made up.
As always in finance the secret ingredient is crime.
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.
I know someone that made 10 million a year for a long time on wall street. They said, generally you can assume anyone making a large amount of money is a criminal. Any large deviations from the typical returns you would see in an asset class was suspicious
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.
SEBI wasn't bold at all. They saw them do this in January, told them in February to stop, and they persisted until they finally shut the operation off. They were tipped off as early as November 2024 that this was happening. If anything SEBI was incredibly slow at reacting lol
You can think “there should be a law” without endorsing the reckless and inconsistent ways that Indian regulatory agencies make up laws.
No, India does not view things exactly the same way the west does re: the rule of law vs. institutional power. The regulator has broad authority to stop market manipulation and support from the public that we do not want HFT style manipulation skimming money from everyone else in our markets. SEBI does not need to wait for a precisely worded law for every single type of market manipulation that will take years to pass and then be sidestepped in months on some technicality. They stopped bad activity quickly only because they have some actual power to make judgements and enforce them.
The SEC has similar autonomy in regulating that you describe. Congress does not legislate the rules that the SEC holds firms to.
Not entirely true, Operation Chokepoint 2.0.
I'm not sure how this is related. The so-called "Operation Choke Point 2.0" (which as far as I can tell is just a term used by the Trump administration to describe behavior of the Biden administration) is about bank regulation, which is not under the purview of the SEC.
They (presumably) do after Chevron deference was killed
I don't think this exactly the takeaway of Loper Bright Enterprises v. Raimondo. It just means judges have more power to weigh in with their own opinions when there is ambiguity involved, not that all the specifics of implementation _have_ to be specified to mean anything.
> HFT style manipulation skimming money from everyone else in our markets
Literally the case in question here is a crystal clear example of manipulation? What possible value does this trade provide to any other market participant, and where do the profits come from if it doesn't provide value?
More importantly, there is a lot of debate around what value HFT provides to markets, all I'm saying is that in general the Indian public does not believe its a net positive and SEBI acts accordingly. Maybe you disagree, that's fine.
Do you have any evidence of it reading like a tin foil hat? Otherwise it reads like someone doing that practice or servicing someone doing that practice and skirting responsibility
That's why the Indian state looks the way it does.
Which is fine, that's how the Indians prefer it. Not every place needs to be the same.
Nathan Anderson would have a word. It's just tribalism.
There is no fucking way he published those articles without being crooked himself. It's like they say, "no honor among wall street assholes"
We can survive traders of questionable morals, especially if there's proper government; having a wall-street-asshole-tier immoral regulator is a one way street.
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.
I wonder if things would be more tempered if you could, like in France, do a crime that is technically legal, but breaks the spirit of the law.
I can see how it would be awful in countries that have a common law system, but I am not sure I am completely against it in most of Europe.
>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.
Can you expand on this?
>the regulators are either too lazy, stupid, ill equipped or uninterested to do anything about it.
Or it's their friends doing it and they're not uninterested, they're very interested in ensuring it continues.
That's sort of the very definition of arbitrage in today's modern markets - its not just the text book definition of "borrow money at a low interest rate and invest at a higher interest rate": there's latency arbs, regulatory arbs, microstructure arbs... They belong to the firms who can research and benefit from them before others figure it out.
> its not just the text book definition of "borrow money at a low interest rate and invest at a higher interest rate"
That’s absolutely not the textbook definition of arbitrage.
Arbitrage is buy something somewhere at a price and resell it in a different market at a higher price. It’s just price arbitration hence the name.
There are no other kind of arbitrage implied when people talk about arbitrage. That’s what the word means.
We can disagree on both points.
The example (ok - not exactly the definition - but close enough) is the Triangular Arbitrage in foreign exchange. This is cited in almost every textbook on explaining the topic.
The Wikipedia entry on arbitrage lists a dozen types of arbs. So while they may all be of the same "type" (buy low/sell high) there are nuances. It's like saying all cow meet is just beef: there are different cuts that taste different.
I hear this defence of NYSE specialists now and again. Why do other markets, including the NASDAQ, not require them? It makes little sense to me in 2025 where the vast majority of trading is electronic.
Does it really matter? I've done nothing but buy and hold at reasonable prices, and market manipulation has never affected my trades. This seems like finance bros fucking finance bros, which is solidly in the "who cares" category of my life.
Trades on this scale move the big indexes, and everybody in the market is exposed to the passive investing ETF complex.
Even if you are purely a stock picking buy and hold value investor, you will feel the reverberations. The modern market is deeply interconnected, and what Jane Street is doing here is literally moving the entire index volatility complex to pick up a modest billion a year. Let's say your small cap value stock issues some converts. A hair of that trading strategy will be embedded in the pricing model for the converts, and it will slightly change the cost of the debt for the company. Once you get out to 3rd 4th 5th order effects, it becomes a very faint influence, but when you consider that some of these market making/HFT trading practices at the core of the market are so deeply interlinked to just about everything that prints a price on a screen, it should be apparent that there is value in keeping the core areas of the market like the index volatility complex as clean as possible. Now weather Jane street's trading is just Irving price differences and improving the efficient market, or market manipulation, well that's another question, but the general rule of thumb is if you're using gigantic size to force bids and asks around, that's at high risk of being considered market manipulation that is toxic to market function.
Can you actually show that this is bad for me? It just seems like free market stuff working as intended, and the people getting fucked are other snakes trying to fuck other people over.
I showed one direct cost in the example above, by showing that the trades theoretically drag up volatility, which decreases market stability, increases the cost/risk of leverage, and lowers collateral value of equities. That will quite literally show in the pricing model of newly issued convertible bonds, which will correspondingly raise the price of debt and lower the price of equity for those that issue converts.
Yes, these are very small effects. Despite profits of 1 billion per year, trades on major index level aren't directly going to impact regular people in a highly visible way. That's arguably the insidious part, because it adds up, and occasionally this sort of thing leads to major negative financial events/crashes. The passive investing/index complex anchors the entire tradable financial system. It's massive in scale and attributes like index level volatility are innately tied to many other variables all throughout the system.
There's a good (relatively light and readable) paper called Liquidity Cascades which views the market through this lens of interconnected feedback loops which can sometimes have unintended consequences. That's another major reason you don't want HFTs and prop firms getting too crazy. It's not just about measurable impact in the real world timelines, it's also about pruning the tails in the far out distributions of the possibilities space - and the world has fat tails so it's prudent to mind the tails... The 2020 crash is a great example of a feedback loop that fed on itself until it destroyed the entire interconnected system within a few days and demanded central bank intervention (COVID was a catalyst, not a cause. The basis-trade was fragile, and a dynamic hedging feedback loop took broke the volatility complex and took out equity markets -40%, at which time the effects were most definitely felt in the real world as the Fed had to step in with 1 trillion, and they then entered a badly managed panic phase (which is on them, but still...) which very much contributed to the inflation wave and the housing price surge which locked out a generation from affordable housing).
Over the past 5 years the tail has really started to wag the dog in derivatives markets, and it's an extremely well orchestrated battlefield now. One of my acquaintances who sold a 4.5 sharpe ratio firm and clears 50k a day casually trading futures seems to spend a good amount of his day tongue-in-cheek complaining about this. As do we all. I'm a PM as well with an options book, and trade options in parallel in my personal accounts, and during the day we chat in a room and watch flow move around in index options, because the option positioning drives price. Watch the flow, reverse engineer the hedging activity, map out the implied liquidity, and join the bandwagon and pin/grind down price to these option levels. That's the game currently, and you either participate or you have negative edge. In single names as well, often the option landscape dictates price discovery.
Like you said, at first glance it's just snakes eating snakes, and arguably to a beneficial end as we all get a more efficient market at the end of the day, but is that necessarily the case?
All participants agree that there need to be some boundaries against activities like outright spoofing, submitting a fake takeover offer to major news outlets, etc. That's because it's immediately obvious that these activities detract from market function. They detract from the utility value of the market to society.
So let's take the general example of "options moving the market" on an industrial scale above, and give two more recent, bigger examples of how it can cause problems. Not criminal problems and still fairly arcane, but maybe something that shows we should be better designing our systems to manage transparently. These tidal forces of index option flows became so dominant in... I think it was Aug '24, that a large correlation bubble grew under the surface. The mechanics aren't important, but in short the mega-cap names were all perfectly anti-correlated as a result. One moved up, the other moved down, yet the indexes moved zero. Risk was building under the surface, like a roller coaster's chains clicking up a ramp. This was arguably spurred by index options overwhelming all other market forces (which ties back to the original article, except Jane would have been weaponizing these forces in an engineered way). Well this emergent mechanically driven bubble grew and grew, until voices started speaking up, and there was an almost self-fulfilling prophecy where it ballooned to absurd degrees (multi decade extremes) and then caused a small market panic event where volatility exploded and some giant mega-caps crashed for a bit.
Distill the above event, and what you're seeing is a "new" kind of boom/bust, cyclical price discovery anchored off of option flow, that I personally argue generalizes to the entire market now. And the questions to ask are questions like "is this contributing to the utility of markets? Should better guardrails be in place? Are we building systemic risk?" You know, questions regulators used to ask before they mostly went dark. In this new paradigm, most of the time options dominate price discovery, and any participant fighting these forces just gives up their money to those that are playing the game well, which reinforces the behavior. Every once in a while these hedging forces release their grip on the market, and we get some short burst of violent, pent up price discovery, before the option forces close back in and greek math like vanna and vomma dictate price discovery once again.
So the first conclusion I'd argue here is that transparent and organic price discovery is one of the major utilities offered by markets. If we're only getting organic price discovery in short violent burst every once in a blue moon, we're getting less information on what market prices infer about the real world. A parallel would be QE and painting the tape on the global bond markets, which drew an opaque veil for over a decade over a market which historically has been critically important as an input into many areas like financial risk management (and again, contributed to the horribly managed and prepared for real world inflation wave).
The second conclusion is that all of this is contributing to systemic fragility, which is an important enough real world metric to manage that it's baked into the core of the US central bank mandate, for example. A correlation bubble tanked Nvidia by 10% in a day, haha!... sure, but that isn't healthy, and roll the dice 10x, maybe 2 outcomes would be a more major crash, and sometimes these events go to very bad places, like the events that spurred the GFC (beyond the major trading institutions blowing up, there was a sort of quant collapse much like the correlation bubble above that actually was the initial spark of the GFC). It's just easier to manage problems if it's not a fiery explosion, so we should generally try and minimize nitroglycerine in financial markets...
On a more anecdotal level, these sort of extreme, late stage situations like "Jane Street weaponizes index options and pulls a billion a year out of Indian markets" are rarely good omens for healthy market function. What the market generally does is seek out weak points and incomplete models, and make it increasingly obvious via absurd situations until participants or regulators are forced to change behavior. If the system is not "working" and nobody cares, a sort of malicious nihilism creeps in to the financial space. Like the bankers laughing about MBS before the GFC after work at a bar in NYC, or prop traders saying "fuck it, let's double our size next year" while laughing about opponents getting crushed after their coordinated rush on liquidity tanks markets at the end of day like clockwork when it suits them. Most of the time financial markets reach equilibrium, but sometimes these things accelerate in odd directions, which is why we manage financial markets.
I'm not so sure some of the topics referenced above are terminating in a healthy equilibrium.
Our 401k & pensions are managed by "finance bros"
I hope mine is not managed by someone dumb enough to keep handing money over to Jane Street on such a simple scheme. If they are that dumb, I need to move my money way more than I need Jane Street punished.
Real question: Does Jane Street accept outside money? I don't think so.
> on such a simple scheme
Scale and exposure. That's my hypothesis.
Nobody wants to commit as much to Indian markets because it's relatively primitive compared to more lucrative markets such as the US, China, etc. Jane Street was an outlier in that they took a bold bet on executing this manipulation strategy. Hence they readily dumped in billions, with an assured annual 1B profit. Because there are not many players to dig in and track their moves, they went largely unnoticed by other players.
Good luck moving "your" money out of a shared pension plan.
For a defined benefit plan, I don’t need to care. For defined contribution plan, I care (but can usually choose investments). I personally only have 401k, IRA, and after-tax investments, no pension.
For defined benefit you need to care if it goes insolvent.
That's where PBGC comes in: https://www.pbgc.gov/wr/benefits/guaranteed-benefits/your-gu...
In 2025, most people have passive index tracking funds in their 401k. Not exactly rocket science.
Maybe, but most working adults don't have a 401k. It's almost 50% last I checked.
My 401k is a well diversified portfolio of stocks and bonds, not a HFT or options trading playground.
> portfolio of stocks and bonds
> not a HFT or options trading playground
Do HFTs not trade stocks and bonds? Or options on them?
My portfolio isn't managed by a fiance bro, so I don't care if Jane Street is sending them to the food bank.
On Indian options markets
> 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-...
India has had a history of market manipulation and stock market crashes. One specially high profile one was 1992 after which SEBI got it's powers.
While what JS did would likely be allowed (borderline) in many other markets, it would be looked at highly suspiciously in India. The underlying narrative is clear, where Indian retail traders are green and need more protection to invest their wealth rather than simply earn interest (India's saving interest is 3.5% and a fixed deposit pays at 7.5%). SEBI also banned shortselling in India for a similar reasons of protecting retail investors. Even institutional investors who can short are not allowed naked shorts or closing their positions in short period (within a day). SEBI values market stability.
Overall, Indian traders are inexperienced and not as aware when it comes to options, so expect a regulator to be extra strict here. Free market is a good argument, but that has never been an explicit prerogative for the regulator. When SEBI cautioned against options, they cited speculative bets and disadvantage against institutional investors.[1]
[1]: https://blog.liquide.life/sebi-new-rules-options-trading-imp...
I agree. Basically India's retail crazy drive on options directly go to the pockets of market makers or prop traders on the other side of the table.
Though usually short sell bans are not done to protect investors but companies, to protect companies from investors who might know something.
There were fools in size in that market, and they got fleeced. What were they doing ? If anything, JS was teaching them a lesson - and now, with this action, they will be bolder in their foolishness, and someone else will separate them from their money. Index options markets are not for the unsophisticated to play in except as a casino.
How about some sort of tax on financial asset transactions?
India has one (https://en.wikipedia.org/wiki/Securities_Transaction_Tax). Retail investors don't choose to day trade options because of some rigorous financial analysis, so they aren't going to be discouraged by any feasible transaction tax rate.
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.
> You’ll see Jane Street will pay a fine and come out on top
Maybe, but the stain on their reputation is hard to wash off. They will forever be known as a manipulator.
What was a geeky ocaml wielding quant shop is now viewed as plain-old manipulating crooks with a nerdy veneer.
That’s such a STEM thing to say. In finance, this is considered a badge of honor.
Your genius physicist hedge fund operator who "broke the game" in the investment world ended up paying $7 billion in a tax settlement [0]. There’s no algorithm—it’s all about regulations and manipulation. In the investment world, fines, "bureaucratic investments," and similar costs are just operating expenses. Guess what? Everything is a line item in a financial report.
You hire STEM researchers from Ivy League schools—why? You hire these guys, not just because they’re smart, but because they come with "back home connections" —maybe a multi-millionaire businessman for a father or a politician for an uncle. Nobody makes it to these colleges or financial institutions by merit alone. You need those connections. That’s entirely how finance works.
[0] https://www.wsj.com/articles/james-simons-robert-mercer-othe...
thanks for the your perspective on this ! It is somewhat depressing to view it in that light, but thats the way it works. Being in STEM, and not in finance, I thought reputation and trust matter in banking and finance based on articles like this [1].
[1] https://www.matthewpowell.com/weekly-note/warren-buffett-ste...
Extremely funny that Jane Street's "elite strategy" leaked and it's just banging the close lol
They probably run every sort of strategy available in various markets. The indian one they probably played a much riskier hand thinking they could get away with it.
Tower got caught doing the same thing about 10 years ago. Apparently the strategy was literally called "the hammer" or something that was far too on-the-nose, but it was exploiting other strategies at the firm that bought a ton in the morning and hammered the close - "the hammer" made that leg profitable.
I assume Jane Street's version of this may have been unintentional: get your big position to do a bunch of intraday trading without worrying about being too short, then exit at the end of the day. This can work because markets tend to go up or stay flat intraday, meaning you get to use typical strategies in a jurisdiction that doesn't like when you go short via superposition. Then along the way, someone figured out this options trade and didn't realize their own behavior was influencing the price of the option (oops, I guess it wasn't superposition all along).
You're thinking of Optiver's The Hammer, though every HFT firm has basically done or is doing something like this. [1]
Jane Street's version of this was absolutely intentional.
[1] https://www.reuters.com/article/business/high-frequency-trad...
Ah, my mistake. Optiver was The Hammer. The tower regulatory action was for spoofing.
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...
I do not have access to the FT, can you link directly to the document from SEBI?
SEBI doc: https://d1e00ek4ebabms.cloudfront.net/production/uploaded-fi...
Non-paywalled FT article: https://archive.is/2025.07.06-105811/https://www.ft.com/cont...
> 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.
> without any plausible economic rationale
Since when making money is not an economic rationale?
>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?)
"market manipulation" in general is hard to define. The working definition in the US is something along the lines of "placing orders in the hopes that the price of the security will change in response to those orders existing, with no intention of actually executing the orders". There may be some specific regulations about specific types of market manipulation that are more clearly defined, but oftentimes not. There's lots of grey area, because the definition of market manipulation makes it seem like any order that's canceled instead of executed might be market manipulation. But in fact a majority of orders do get canceled before they trade!
So the real difference between market manipulation and a canceled order is just intention, so regulators have to make judgment calls sometimes.
> "market manipulation" in general is hard to define. The working definition in the US is something along the lines of "placing orders in the hopes that the price of the security will change in response to those orders existing, with no intention of actually executing the orders".
No, what you defined is "spoofing" - a much narrowed subcategory of market manipulation (which itself is gray, as you note). Market manipulation is broader and basically amounts to intentionally trying to affect the price of the security - even grayer.
In finance, regulation has two major flavours: prescriptive (specific) and "in spirit" (broad). US is mostly prescriptive, but the Howey test is a good example of "in spirit". Singapore is basically the inverse. Both can work well.
Honestly, there's a good case to be made that it doesn't matter. A government has every right to say "don't manipulate our market and try to fuck our economy" and not need to specify every tiny little loophole, especially to foreign companies. The fact that they must be reactive means they are always behind, and guarantees their country will be screwed and untold damage done before the problem can be addressed.
There is absolutely zero illusion that Jane Street is acting in good faith. They know what they're doing is wrong.
After all the manipulation, all the crashes, all the exploitation - maybe it is appropriate to just say "I don't care if we wrote it down, we've had enough of this shit".
> A government has every right to say "don't manipulate our market and try to fuck our economy"
I look forward to the Matt Levine's section on this in tomorrow's Money Stuff.
I'm very reminded of this Money Stuff: https://www.bloomberg.com/opinion/articles/2024-04-18/jane-s...
Probably unrelated, no mention of Millennium.
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?
It's helpful to remember the history of how they got here. Commodity producers (farms, oil) need to make investments before production, but want to reduce their exposure to changes in the spot price in the future. Hence futures: the ability to sell oil or onions six months in the future at an agreed price, rather than wait until the day to find out spot. This is genuinely valuable to them in terms of shifting risk to the finance industry in return for a price. It's like insurance.
Options are then futures where you don't necessarily have to close out the position. They are a means of insuring against price changes .. or to get paid for providing such insurance.
However, in things like farming and oil exploration much of the risk is real and physical. The further away you get from that to derivatives of other financial instruments, the more it becomes just a mix of what the other market players are doing.
Then there's "we priced these risks as de-correlated but actually they're correlated", which blew up a lot of people in 2008.
Helpful comment, but it's also mildly amusing you picked one of the few agricultural underlyings you can't trade futures on (Onion Futures Act). Not sure if that was intentional or not!
It was - and illustrates the point that these markets are fine until someone tries to corner them..
Puts let you hedge long positions, calls let you hedge short positions. Without that you'd have to liquidate much sooner so there would be more volatility.
More abstractly derivatives let traders in one asset pay premia to offload risk to other traders who are more able to absorb it. This way everyone has what they want and the market functions more efficiently. It's very similar to insurance (and you can actually model insurance like a portfolio of long/short put+call options with a probabilistic (event dependent) multiplier.)
In equities for example, an option at a given strike let's you pay a little for insurance i.e. that you will have X amount of cash if SPX is at Y and so on.
This is very important for pension funds and so on because they have fixed liabilities like outflows.
All these things are is a way of moving risk around. Some people want risk, some people want to hedge — it's just as true for wheat as it is for bonds.
It's not so much price as risk.
As a start, separate "derivatives" (a huge category of products) into two simpler categories: listed options and futures. For many underlyings, like interest rates or commodities, it is very difficult to trade the underlying directly, so you use derivs to trade them indirectly.
Related: My biggest concern: There should be more gatekeeping around allowing retail traders access to derivs markets due to the implied leverage in the contracts. That said I don't know a good way to gatekeep. How about an exam?
>Related: My biggest concern: There should be more gatekeeping around allowing retail traders access to derivs markets due to the implied leverage in the contracts. That said I don't know a good way to gatekeep. How about an exam?
In the US, investors need approval to trade options. https://www.investor.gov/introduction-investing/general-reso...
I have gotten approval in a few different jurisdictions for retail derivs trading. The barrier to entry is pathetically low in all cases. Literally: Tick a box to agree if you accept risk and are "qualified".
My broker presents a form with questions that I need to get right before they allow me to dabble in the leveraged and tricky instruments. Don't remember how many exactly, it's a combination of questions like 'can you lose all your invested money' and technical ones that reflect the type of instrument.
I assume it's a compliance requirement, they get a record of me having said the right things at one time and don't really know if I got someone else to tell me what to answer. Still, I think it's actually keeping some people out, judging from some forum threads where they try to get help to pass and seemingly fail even though others are telling them basically what to respond with.
The idea that always felt at least tentatively compelling to me is that options prices themselves allow a way for people to express their sentiments about whether a security is under-priced or over-priced — while putting money on the line to do so.
Under-priced? Buy the stock. Over-priced? Long or short sell the stock. In your case, why do you need options? All are much lower risk than retail folks using options.
Shorting the stock is much higher risk than using options. With options you can cap your liability at particular levels, whereas with traditional shorting your potential losses are theoretically infinite.
It’s all about being able to control the risk/reward profile of a trade. Options can be deployed cautiously or recklessly.
They allow for more flexible risk management (ie hedging), especially when dealing with margins or not very liquid tickers because they give you exposure to 100 units (%δ * 100) without requiring you to buy or sell them.
If you own stock, you can sell calls against it — especially if premium is high to hedge against drops. If you are short stock, you can buy calls to hedge against short term movement.
I personally don’t think they improve price discovery because market microstructure through options and mm exposure affect pricing.
The alternative claim - that large traders do not make decisions based on how their activity will move the market, is of course absurd.
It’s just political. Who is allowed to manipulate and who pays their dues to be able to.
> The alternative claim - that large traders do not make decisions based on how their activity will move the market, is of course absurd.
No, that's de riugeur for any large firm. You or I can buy a stock without changing the market, but if a bank or hedge fund wants to buy or sell millions of dollars of a stock they very much have to worry about execution. The price they receive for a trade will be worse than the market price, simply because the price will move once it's clear that someone is making a large block trade.
This is also why hedge funds worry about their 'alpha'. Even when they have found a good basis for a trade (e.g. an as-yet unexploited correlation), taking a position to profit on that trade moves prices in ways that eliminate that edge. That's the efficient market hypothesis in action.
The very odd thing here is the allegation that Jane Street could make perfectly ordinary market transactions in liquid securities and somehow have the market move with their net position. This is extremely unusual.
Not really.
In this case it was Millenium ratting out on Jane Street (edit - other way around), but now the entire HFT (Edit: hedge funds. Thanks for the callout avvt4avaw) industry is under extreme scrutiny by SEBI as a result [0]
[0] - https://www.sebi.gov.in/enforcement/orders/jul-2025/interim-...
Yes as presented this behavior is clearly illegal. The next interesting question is if such an obviously illegal strategy was in use by JS, and they also produced the likes of SBF&co, what other related manipulation activity are they partaking in?
This behavior became common in the Indian market after the newer HFTs (Edit: hedge funds. Thanks for the callout avvt4avaw) in the Indian market like Millenium, Jane Street, Citadel, and others setup shop, and explains a LOT of the market weirdness that happened last year. DE Shaw India has been a much smarter player in Indian equities.
Jane Street's kvetching about Millenium showed the spotlight and now everyone will be getting the hammer ("iss hamam mein sabh nange hain"). Jane Street was also dumb enough to do this during the General Election, so now Indian regulators have to do something. This plus the Adani prosecution is a quick win to restore confidence in SEBI.
This is a very weird use of terminology. None of Jane Street, Millennium or Citadel are High Frequency Traders (HFTs). Jane Street is a prop trading firm who engages in market making, but is not primarily known for HFT - they are grey box (i.e. human-in-the-loop) which on the spectrum of market making strategies, is pretty much the opposite end from HFTs. Other firms in this bracket include SIG and DRW.
Millennium and Citadel are both hedge funds, who do not engage in market making at all. They are most similar to other multi-strategy hedge funds like Balyasny or Point72.
You may be thinking of Citadel Securities, who are a market making firm and do engage in high frequency trading. Other large and well known HFT firms include Hudson River Trading, Tower Research, Jump Trading, Virtu, IMC and Optiver.
I'm not a domain expert in this space, and have used HFT to refer to these firms simply due to their technical trading nature. I appreciate the explanation! The closest I've ever been to this industry was bombing an FPGA optimization interview at Citadel eons ago, but I also don't like humidity or snow for 9 months in a year, but I do like Malort and Hyde Park - such is life.
Jokes aside, I appreciate callouts and/or corrections!
>This behavior became common in the Indian market after the newer HFTs (Edit: hedge funds. Thanks for the callout avvt4avaw)
You weren't wrong. All market making is now electronic and all electronic market making is done at a speed only available to HFT firms, so the previous comment reply to yours saying that Jane Street is a market maker but not HFT, is more than a little silly. The Citadel being referred to here in this reporting is also the market making (hence HFT) one, so their attempted correction on that made little sense either.
Oh, well, I'm not a domain expert in this space. I'm a VC - my job is to be confidently wrong ;). The closest I've ever been to this industry was bombing an FPGA optimization interview at Citadel eons ago, but I also don't like humidity or snow for 9 months in a year, but I do like Malort and Hyde Park - such is life.
All I know is a set of firms like Millenium, Citadel, Jane Street, etc ki gaand phatne wale hain. You don't pull these kinds of shenanigans during or in the run-up to General Elections, Bihar Assembly Elections, or UP Assembly Elections. People have been screwed over for less.
I don't see how elections are relevant here. And also, in India every year there is some kind of election. If not Bihar, then West Bengal
> I don't see how elections are relevant here
Everything revolves around elections in India. It is a highly political environment and elections are a big business (just getting a party ticket nomination to campaign for an MLA seat itself costs around $10-20 million).
And the public sentiment against big business in India has gotten much stronger lately due to the past several years of inflation. Jibes against Adani and the stock market crash in 2024 after the General Election solidified that view.
> If not Bihar, then West Bengal
West Bengal state elections don't matter - it's not a swing state, and the local TMC has removed any breathing room for other parties like the BJP, INC, or CPIM in the WB political arena.
Bihar on the other hand is a swing state which is up for grabs this year due to the succession crisis within the ruling JD(U), and it's election is always used as a petri dish for messaging and campaigning across Hindi-speaking North India.
The Bihar and UP state elections always set the tone for the General Election. The others are important, but nowhere near as important.
I still don't see how banning JS will benefit BJP in next election. The avg Indian wouldn't even know what Jan Street does.
I’m speaking broader than that. It’s impossible to move a lot of money without secondary effects. Any pretense that does not give you advantages is misleading.
Any pretense that does not give you disadvantages is misleading. Small shops and retail don't have to worry about e.g. slippage like the big guys do when taking positions. Big shops can work out custom instruments sometimes but on the other hand they also need them a lot more, as trying to pick up adequate hedging in derivatives mkts could wind up with yet more slippage. Etc.
Yes, and so it’s a misnomer when we talk about whether a big player is manipulating or not. They are.
Yup Jim Simons from the Renaissance hedge fund fame kept saying that: there are a shitload of (legal btw) strategies that do work with smallish amounts but they stop working once you get big.
Didn't Jane Street sue Millenium first? I think the lesson of all this is - don't sue over your trading strategy secrets.
I think you might be right. It was such a juvenile and petty squabble.
And on top of that - don't make such squabbles public during a GENERAL ELECTION, thus forcing politicans to cleanup shop.
Same thing happened to Adani Group, as their scandal hit during the run up of the 2024 GE.
Now both Adani Group and the HFT industry are under severe scrutiny due to the upcoming Bihar Elections, which is used a sandbox to test messaging by the opposition and incumbents in preparation of the next General Election and other state elections.
First part: Yep, 100% agree.
Second part: Typical HN when discussing public markets. Zero evidence provided, except "my tin foil hat works".
The second part follows logically.
If large movements of money manipulate the market then when would “manipulation” be used to claim an actor was misbehaving?
1) they did a special kind of manipulation clearly against the rules 2) they didn’t do anything different, but the regulators decided they didn’t want them to.
2 would be exactly what I said - their activity has acquired political interest.
Janestreet and its graduates earned a reputation, and it’s not a flattering one.
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.
The article said:
> 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.
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
Selling naked puts doesn’t seem particularly outrageous. About half the time that I want to buy a position, I’ll sell a series of put options just OoM until I get assigned the shares I want, collecting small premium along the way.
My “hedge” in this case is that I want to own the shares. (I’m short vs where I want to be.)
Futures index option traders are not looking to get assigned a basket of hundreds of stocks. They are cash settled, for one, so all that gets assigned is a profit or loss.
My understanding is that it is the closest to legal gambling available in India and so the local market for gambling type behavior inflates the Indian options volume.
i knew anyone who loves ocaml that much couldn’t be trusted.
Jane St HQ knew what it was presumably because of the action against Millenium. I would not have imagined Jane St doing something so ill
News that portrays Jane Street in a negative light on HN? This should be good.
What is „market manipulation“ actually vs non-manipulative buying and selling to make a profit?
Take the example of spoofing. A trader puts in a 10mm order on the bid in futures, and then pulls it once price gets near him. He then develops an automated trading strategy that capitalizes on the volatility spike in the options market when this bid hits the tape.
This example has two common characteristics of market manipulation - using size to push markets in a direction for personal benefit, and putting the bid in with sole intent to push the market, as in there was never any desire to see the order actually get filled.
If Jane Street was selling options that were only profitable within the context of a strategy that involved pushing massive size into the market near market close and forcing price down, that is likely categorized as manipulation. On the other hand, if they were moving inventory and in the process moved price, and they tweak their trading strategies to further profit from this, that's a more arguable position.
> What is „market manipulation“ actually vs non-manipulative buying and selling to make a profit?
directly proportional to the distance from the courts/judges/regulators
market manipulation is when you place/cancel an order with the intention that the market will react to you in a specific way, with no intention of that order actually executing.
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.
Nice to see that not all regulators have become toothless jokes like the SEC.
I wonder what kind of shady stuff they're doing in other markets.
As these other countries become more wealthy and lucrative in and of themselves due to the sheer industriousness of their citizenry rather than trying to “extract value” through shameless and country-destroying corruptive exploitation, we won’t have much of a reason to look up to places like Jane Street. I don’t particularly care what the interns have wrought because quite frankly the company is a parasitic entity that should not be looked up to as an example, but as something to immediately investigate as a nest of illegal activity that leaves the country worse off.
Am I surprised they were cut off? No, not at all. They should be cut off in the West altogether.
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SEBI is prosecuting Adani now [0] (edit: correct link [1] - they are going after Adani Group's holding funds in Marutius). The previous chairperson of SEBI was unceremoniously canned this March for this incident and the Adani incident, and the current chairperson (Tuhin Kanta Pandey) cleaned up Indian SoEs during their privatization during Modi 2.
Edit: cannot reply below
Indian regulators won't settle with Adani Group. They have become a political liability due to how slapshot they played AND because the Bihar Elections are coming up, so skinning some goats (balli ka bakra) is a quick win - the RJD, INC, and TMC attacks on Modi+Adani are landing in Bihar and much of the rest of India.
Every Indian government does this - such as Kingfisher Group, Sahara Group, Gitanjali Group, etc.
Treat it the same way as Truong My Lan's case in Vietnam and Wanda Group's case in China.
[0] - https://www.reuters.com/sustainability/boards-policy-regulat...
[1] - https://www.reuters.com/sustainability/boards-policy-regulat...
That's not what the article says.
> Adani, the nephew of Gautam Adani, was sent a notice by the Securities and Exchange Board of India (SEBI) last year which alleged he shared information about Adani Green's (ADNA.NS), 2021 acquisition of SoftBank-backed SB Energy Holdings with his brother-in-law before the deal was announced, according to a source and the document.
Some Adani relative is getting a slap on the wrist for a $100k insider trading violation. This has nothing to do with the main issues raised by Hindenburg.
Indeed. Seems political establishment and regulators were waiting to find some small piece to sacrifice and now that they have found one, "rule of law will be applied to fullest extent".
Unlike corruption etc, rule of law really is best way to reward your favorites and punish your adversaries thoroughly.
It's called selective enforcement
https://en.m.wikipedia.org/wiki/Selective_enforcement
India has history on this
https://m.economictimes.com/news/india/india-using-anti-mone...
Pretty much. Welcome to the developing world. Morality and ethics don't matter. They are tools like any others in power plays .
As the classic Indian maxim states - "Jiski laathi, uski bhains".
Nobody in the current lower structure is going to do anything about what Hindenburg raised - they’re too complicit.
Other way around. Lower rungs at AGMUT roles are the most vocal about abuses of power becuase they want to become a joint secretaries in 20 years. It's once your role approaches cabinet appointment level that stuff gets dicey. Of course, Pandeyji is fairly clean and has a reputation as an enforcer in Odisha and later during the cleanup in the run-up of privatization. It's going to be mid-level leadership that will push back.
Like I said before, treat this the same way you would similar news in Vietnam, China, Russia, or Romania.
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