Unlock Editor’s Digest Lock for Free
FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
The big news this morning is that Indian financial regulators banned Jane Street from the country’s market due to a “sinister plan” to manipulate Indian stocks and derivatives.
India’s Securities and Exchange Commission claims that US trading companies have made illegal profits of $550 million from these strategies. As reported by Mainft:
India’s Securities and Exchange Commission said Jane Street’s decision to limit access to Indian securities markets was attributed to a multi-month investigation.
“The JS Group has stated in a tentative order, urged to implement intentional, well-planned, ominous schemes and art to manipulate cash and futures markets, manipulate banks (Indian banking stocks) index levels, trading small numbers of investors at unfavourable and misleading prices, and promote the benefits of the JS Group.
“Entities have been restricted from access to the securities market and are further prohibited from buying or selling securities directly or indirectly,” he added.
The regulator has asked Jane Street to put $550 million in “illegal profits” in its escrow account, the statement said. If the money was transferred, someone close to the investigation said the ban could be lifted. Under Indian law, the company could ultimately face fines up to three times that amount.
Jane Street disputed the allegations, saying in a statement that she “promised to operate in accordance with all regulations in the region we operate worldwide.” In a letter to Sebi Jane Street, he said that the transaction is designed to manage the exposure of options.
Obviously, Alphaville jumped on the Sebi website to read the full interim order and upload it for the readers to enjoy. 🍿🍿🍿🍿
The first thing that stood out to us was the trigger for the SEBI investigation in 2024 lawsuit the trading company launched against two former Jane Street traders who jumped on a millennium management and a hedge fund.
It was soon revealed that the lawsuit would revolve around India’s booming options market, claiming that traders had stolen a “very valuable, unique and unique” trading strategy. Jane Street and the Millennium settled the lawsuit in December, but judging by Sebi’s report, it casts a long (and expensive) shadow.
If you want to know more about what SEBI is called Jane Street’s “Intra-Day Operation Strategy,” then we’ll zoom in here for a “detailed scrutiny” on January 17th, 2024, as well as the main issue.
Regulators estimate that the trading company had made 734.93 crores ($86 million) in that day. The relevant sections start on page 12, and the lack of story talent is more than making up for granular details.
Essentially, Sebi claims that Jane Street has longened the banks of Indian Bank Equity Index through futures and inventory itself, but it makes options much shorter. It is said that he then dumped almost every long position on the bill, smashing stocks, and lifting the value of the larger put option position.
Here is the SEBI table showing Jane Street cash equity trading:
That futures trading (high resolution zoomable version):
The total size was popular. Sebi estimates that Jane Street’s net trading value was about $515 million, more than three times the market’s second-largest player, and about 15-25% of the market’s overall trading value. Over the course of eight minutes, Jane Street has established a long position of 572 crores, or $67 million.
This has mostly helped lift the bank’s index by more than 1% in the process of purchasing, according to Indian Financial Watchdog.
The size, timing, alignment and aggressive nature of the buy-side trades of the JS groups in this window support the inference that trading between the heavy components in this window substantially contributed to this upward movement.
Sebi claims Jane Street has used this spike to aggressively sell phones, buy Indian bank stocks, and eventually came in short positions totaling 8,751 crores, or over $1 billion. (High-resolution zoomable version):
Sebi says Jane Street began “systematically squaring and dumping” long positions in futures and stocks during the market close from 11:49 to 15:30. As a result, inventory tanked and the value of larger option locations increased.
Indian regulators estimate that Jane Street lost 61.6 crores ($7.2 million) during the purchase of that long position and subsequent sales, but overall won 734.9 crores ($86 million) in profitable options trading.
The Millennium lawsuit revealed that Jane Street made $1 billion from India’s options strategy in 2023. Still, according to Jane Street’s disclosure to lenders, Asia accounted for only 14% of 2023 net transaction revenues, which meant that India’s ban was embarrassing, but not disastrous for the company.
We are still fully underway with the 105-page report, so we’ll update other things we find (the suspicion of operations near the market seems interesting). Horror in the comments if you see anything we might have missed.
