Since the onset of Covid, a range of vested interests have worked collaboratively to create a construct in the Indian Futures & Options (F&O) market where the rich & the powerful can fleece the poor & the gullible on a colossal scale. To understand the sheer scale of this activity we joined the dots between the two articles referenced above. The Reuters article focuses on those who made mega bucks in this unfair face-off. The Print article focuses on the losers.
For those who haven’t kept up with the SEBI vs Jane Street saga, here is the essence of it. The Indian stockmarket is bizarre because as the Reuters article says “The notional value of derivatives traded in India in 2023 was 422 times the value of the cash market. In most other global markets at that time, derivatives traded at between five and 15 times cash value.” This means that is relatively easy to use the underlying market in cash equities (which is illiquid) to manipulate the index. That in turn allows powerful investors to make lots of money in the F&O market (which is large & liquid). It is not obvious that this sort trading strategy (to move the index and make money in the F&O market) is necessarily illegal. What is clear though is that it disadvantages small, naïve investors at the expense of the big boys.
Let’s begin with Jayshree Upadhyay’s article for Reuters: “More than four months before India’s market regulator began formally investigating Jane Street for manipulation in April 2024, it received information from the country’s top stock exchange indicating unusual activity by the U.S. trading giant, according to three people familiar with the matter.
The National Stock Exchange (NSE) told Reuters that it had provided the Securities and Exchange Board of India (SEBI) “data and analysis on Jane Street as a consumer” beginning in November 2023…
SEBI, which had launched its informal investigation in the second half of 2023, quickly found itself challenged by the voluminous and complex data generated by the high-frequency trader’s activities in India, two of the people said.
In the months between the preliminary examination and the start of a formal investigation, mom-and-pop traders were bleeding cash: Retail investors lost $21 billion trading derivatives over a period of three years to March 2024, according to SEBI data.
Reuters interviewed eight people familiar with the probe, including market sources and regulatory and exchange officials. They described how SEBI struggled to respond to the explosion of derivatives trading in India – the world’s largest options market as of 2023 – and how its dual obligations to police the market and develop India’s financial system deterred it from quicker, bolder action.
The news agency is also reporting for the first time details about SEBI’s preliminary investigation, which came as retail traders were driving the derivatives boom, with low-income investors accounting for 76% of such trades in the year to March 2024.” [Underlining is ours]
Then Ms Upadhyay’s article moves its focus on to the NSE: “NSE, the host of the index traded by Jane Street, thrived as derivatives boomed in India.
It reported Rs 135 billion in transaction fees for its latest fiscal year, up 32% from the year to March 2023. 76% percent of the transaction fees it charges are related to options trading, its latest financial statements show.
NSE made efforts to encourage trading, like setting up a group composed of exchange officials and executives of high-frequency trading firms, according to two people familiar with the matter.
The firms use derivatives as a major part of their strategy and could raise their concerns during meetings, the people said. The group hosted meetings like one on Oct. 25, 2024 that was attended by one of Jane Street’s India top executives, according to minutes of the conversation seen by Reuters.
At that meeting, the group discussed NSE’s plans to increase co-location capacity, allowing high-frequency traders to place their computers closer to exchange systems to cut trade execution times.
“It is estimated to triple the rack space in the next 2 years as NSE embarks on providing the necessary infrastructure to support growth,” the document said.
By the October meeting, NSE was aware that Jane Street was under the regulatory spotlight. It had been directed by SEBI two months before the meeting to scrutinize Jane Street’s trades, according to the July 2025 order, alongside having shared the firm’s data with the regulator for almost a year…
When asked why it hosted the meeting with Jane Street despite SEBI’s concerns, the spokesperson said NSE “interacts with all market participants … to address queries and issues within regulatory boundaries.”” [Underlining is ours]
The Print article describes the wrecked lives of the naïve traders from India’s small towns & villages who lost most of their savings in the F&O market:
“Before he jumped into trading, Ritesh, now 52, used to get frequent calls from unknown numbers asking, “Do you want to become a crorepati?”
It was a very different life from his previous one. For 35 years, he sat behind a wooden counter at his readymade garment shop in Lucknow’s busy Aminabad market, sandwiched between paan and samosa shops. The shop shut down during the Covid pandemic, and he turned to quick-buck pursuits…
Ritesh…recalled that when he began trading, he followed at least 15 social media influencers but tracked only five on YouTube. He found them by using the keywords “best trading accounts to follow”. Sometimes logic mattered, and sometimes brand value.
After mass-following several YouTubers, he now sticks to Nitish Kumar or “NK Stock Talk”, an avuncular content creator who shares stock market tips from a swanky office. His videos have titles such as ‘How to Make Career in Stock Market’ and ‘How to Do – Trading Plan and Psychology’.
By June 2024 Ritesh was convinced he had cracked the formula for Nifty, which tracks 50 large companies across sectors, and Bank Nifty, which includes the biggest banks.
Sitting in his Janakipuram residence, he bought 10 Bank Nifty stocks, assuming if the stocks went up, the index would rise too. As the index rose, he sold index call options, expecting a profit, but the market went against him…. He traded Rs 2-3 lakh in index options — calls and puts on Nifty and Bank Nifty….
Back when the alleged manipulations were taking place, the market began to feel rigged, said traders who spoke to ThePrint. Ritesh and others couldn’t explain how, but it seemed as if someone always knew what was coming…
Among those who have quit stock trading is Ritesh…Only his wife knows how much money he lost.
“She’s impatient and taunts me,” he said quietly. “She asks how much money will I lose now? It stresses me out.”
From running a family business started by his parents, he’s now building a small bakery business with his wife. Every evening, he packs the orders and delivers them in his car….
What is taking longer to change is his social media feed. The same influencers, the same promises keep coming up. Since January, he’s been unsubscribing from the trading channels he once followed religiously.
“I lost money, but I have clarity now. I know who makes profit, and it’s not small traders like me,” he said with a dry laugh….”
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