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
> 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.
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.
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.
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.”
> 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.
>While these actions were not a breach of any regulation, SEBI said that the “intensity and sheer scale” of their intervention, and the rapid reversal of their trades “without any plausible economic rationale, other than the concurrent activity in and impact on their positions in the BANKNIFTY index options markets,” was manipulative.
I don't get the basis for regulatory action if they weren't in "breach of any regulation." Not a fan of financial skullduggery, but it does seem important for government agencies to play by explicit, non-arbitrary rules. (Or maybe this article just got it wrong?)
Anyone have any recommendations for books/papers/articles (math heavy is fine) that give a good steel man argument for why options and derivatives are beneficial?
I can wrap my head around why/how options for physical commodities give price stability for sellers and buyers. But at first glance I struggle to see how derivatives are beneficial in the equity markets. The argument is that derivatives increase market efficiency (more accurate pricing) over what just a simple buy/sell market would give you right? But how valuable is this increased efficiency? Obviously is super valuable to the people who work in finance, but how valuable is it outside of that context?
The blog from Financial Times has a much better write-up, including a link to the official 100+ page legal order from SEBI: "The details of Jane Street’s alleged ‘sinister scheme’ in India": https://www.ft.com/content/41c4789a-afa6-462c-a6ea-9704c2ba7...
> SEBI said that the “intensity and sheer scale” of their intervention, and the rapid reversal of their trades “without any plausible economic rationale, other than the concurrent activity in and impact on their positions in the BANKNIFTY index options markets,” was manipulative.
> "without any plausible economic rationale..."
I had a bit of a laugh at this. I thought the rationale was to fuck the counterparties as hard as possible?
It would seem like Jane Street being allowed to operate in this market is like bringing an anti-material rifle to a pillow fight.
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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[ 0.24 ms ] story [ 77.9 ms ] threadTwo strategies are detailed with trades: 1) expiry day price discrepancies between index options and underlying 2) expiry day painting the close
It’s just political. Who is allowed to manipulate and who pays their dues to be able to.
> 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 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.
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.
> 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/...)
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.
> 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-...
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?)
> 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 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?
> "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.
Am I surprised they were cut off? No, not at all. They should be cut off in the West altogether.