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Business Standard
16-07-2025
- Business
- Business Standard
Are we ready to handle market manipulations in electricity derivatives?
With the imminent launch of electricity derivatives in India, regulatory preparedness has become a matter of urgency. The recent Securities and Exchange Board of India (Sebi) order against Jane Street Group (JSG) offers a cautionary tale of strategic exploitation in derivative markets — one that India's electricity sector cannot afford to ignore. The Jane Street case: A wake-up call The JSG case exposed classic intraday manipulation. The group purchased large volumes of BANKNIFTY index and constituent stocks early in the trading day, driving prices upward. Concurrently, it took reverse positions in the options market. Later, they offloaded their holdings, pulling down prices and reaping disproportionate profits in the derivative segment, while absorbing manageable losses in the cash market. This trading pattern, which came to light through a US court case in April 2024, evaded Sebi and exchange surveillance for over 15 months until interim orders were finally issued on July 3, 2025. Notably, the detection did not stem from domestic oversight but through disclosures in litigation abroad. Sebi's timeline illustrates the vulnerability of surveillance systems, even when both cash and derivative markets are governed by the same regulator (Sebi) and the exchange ecosystem is tightly knit (NSE). The strategy deployed by JSG hinged on exploiting illiquidity in the cash segment and leveraging high liquidity in derivatives—particularly BANKNIFTY options around expiry periods. Electricity spot markets: The challenge of dual regulation The electricity market, structured differently, introduces additional layers of complexity. Three power exchanges—Indian Energy Exchange (IEX), Power Exchange India Limited (PXIL), and Hindustan Power Exchange (HPX) — serve primarily the Day Ahead Market (DAM) and Real-Time Market (RTM). IEX dominates both, handling roughly 3.9 per cent and 2.47 per cent of national generation respectively, amounting to just 7 GW and 4.8 GW in traded capacity. These figures do not reflect a truly liquid market. Further complicating matters, derivative contracts will be settled at prices derived from IEX and PXIL — despite PXIL's minimal volumes. In contrast to equities, where Sebi governs both segments, electricity markets have split jurisdiction: the Central Electricity Regulatory Commission (Cerc) oversees spot contracts, while Sebi regulates derivatives. Some of the large power generators individually control substantial capacity. As such, their ability to influence prices in illiquid markets is undeniable, especially since comprehensive trade disclosures aren't mandated under current protocols. Launch of electricity derivatives: Regulatory coordination is key With derivative contracts having debuted on MCX (July 10, 2025) and set to debut on NSE (July 14, 2025), regulatory silos present risks. While volume caps have been prescribed to prevent distortions, these are not fail-proof. Coordination between Sebi and Cerc must be seamless. Miscommunication or lag in action could have ripple effects — raising costs for electricity consumers and undermining market integrity. The JSG episode underscores the need for real-time surveillance, rapid response frameworks, and clear inter-regulatory protocols. If Sebi's mechanisms struggled with manipulations in tightly monitored equity markets, can the electricity sector — divided between two regulators — claim immunity? Time to ringfence and reform India's electricity derivative market is at a formative stage. This moment demands a forward-looking approach. Regulators must not only anticipate the nature of manipulative strategies but act decisively to prevent their execution. Surveillance infrastructure must be upgraded, communication lines clarified, and cross-market behaviour monitored in tandem. Regulatory failures in one segment must not cascade into others. It is imperative for Sebi and Cerc to insulate their constituencies, proactively guard consumer interests, and evolve with the market. While early action may have been missed, the JSG case offers a chance to set the ball rolling before it's too late.
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Business Standard
11-07-2025
- Business
- Business Standard
F&O Cues: Analyst suggests 'Bull Spread' on Bank Nifty, PFC; check details
F&O strategy: Primary trend of the Bank Nifty remains positive as it is placed above its 50 and 100 day EMA Derivative Strategy BULL SPREAD Strategy on BANK NIFTY Buy BANKNIFTY (31-July Expiry) 57,500 CALL at ₹497 and simultaneously sell 58,000 CALL at ₹319 Lot Size: 35 Cost of the strategy ₹178 (₹6,230 per strategy) Maximum profit ₹11,270 If BANK NIFTY closes at or above 58,000 on 31 July expiry. Breakeven Point ₹57,678 Risk Reward Ratio 1:1.81 Approx margin required ₹40,000 Rationale: Primary trend of the Bank Nifty remains positive as it is placed above its 50 and 100 day EMA Short term trend of the Index is positive as it is placed above its 20 day EMA It has been forming bullish higher top higher bottom formation on the weekly chart. Put writing is seen at 56,500-57,000 levels. FIIS long to short ratio in the Index Futures stands near oversold level, suggesting higher possibility of a short covering by them in the coming days. BULL SPREAD Strategy on PFC Buy PFC (31-July Expiry) 430 CALL at ₹12 and simultaneously sell 450 CALL at ₹4.80 Lot Size 1,300 Cost of strategy ₹7.2 (₹9,360 per strategy) Maximum profit ₹16,640 If PFC closes at or above ₹450 on 31 July expiry. Breakeven Point ₹437.2 Risk Reward Ratio 1:1.78 Approx margin required ₹19,500 Rationale: Long build up is seen in the PFC Futures, where we have seen 6 per cent rise in open interest with price rising by 2.80 per cent. Short term trend remains positive, as the stock price is placed above its 5, 11 and 20 day EMA. Primary trend turned positive as stock price closed above its 200 day EMA. Oscillators like RSI and MFI are in rising mode and placed above 60 on the daily chart, indicating strength in the current uptrend.
Indian Express
10-07-2025
- Business
- Indian Express
Jane Street ban triggers 21 per cent crash in NSE derivatives turnover, exposes market dependence
National Stock Exchange's turnover in the equity derivatives segment plunged by nearly 21 per cent on Thursday — the first weekly expiry after the Securities and Exchange Board of India (Sebi) cracked down on Jane Street — exposing the market's heavy reliance on the US firm's aggressive trades. The sharp drop, compared to the previous expiry on July 3, highlights just how deeply the allegedly manipulative player was embedded in the system. The overall turnover in the bourse's derivatives segment on Thursday stood at Rs 476.39 lakh crore, down 21.29 per cent, compared to Rs 605.23 lakh crore on July 3, a day ahead of the Sebi's interim order against Jane Street was released. The number of contracts traded on the NSE's derivatives segment was down 21 per cent to 25.25 crore on July 10, compared to 31.92 crore on July 3, according to the NSE data. Total turnover in the NSE's F&O segment on July 10 was the lowest since the weekly expiry day on May 8, 2025. With Jane Street, the most dominant player in the derivatives segment, barred from the market, turnover in the segment is likely to fall even further in the weeks ahead, market experts said. Last week, Sebi issued an interim order restraining Jane Street—a US-based proprietary trading firm—for allegedly using manipulative trading strategies. The firm consistently engaged in trading patterns that raised serious concerns about market integrity, especially during the expiry of index derivatives, according to Sebi. The decline in the total turnover on July 10 was mainly due to a 21 per cent fall in turnover in the NSE's index options. Turnover in the NSE's weekly index options on July 10 dipped 21.4 per cent to Rs 472.54 lakh crore, from Rs 601.24 lakh crore on July 3. The number of contracts in the NSE's index options reduced by 21 per cent to 24.73 crore from 31.4 crore during the period. Sebi examined the aggregate profit/loss made by the Jane Street group for the period January 1, 2023 to March 31, 2025. During the period, Jane Street's profits from index options alone accounted for around Rs 43,289.33 crore whereas losses in stock futures, index futures and cash cumulatively stood at Rs 7,687.21 crore, according to Sebi's interim order issued on July 3. According to Sebi's order, the most profitable trading day for Jane Street was January 1, 2024, when it made profit to the tune of Rs 734.93 crore. Total profit made by Jane Street in the investigation period stood at Rs 36,502.12 crore. In its investigation, Sebi found that BANKNIFTY index- a major index of the securities market comprising 12 stocks of the country's major banks – was prima facie manipulated in a complex and illegal manner aided by the Jane Street group's immense trading, financial and technological prowess. The group deployed two unauthorised proprietary trading strategies – Intraday Index Manipulation and Extended Marking the Close, the regulator said in the interim order. The group allegedly made a profit of Rs 36,502.12 crore during the period of investigation. The regulator has ordered the impounding of Rs 4,843.57 crore of unlawful gains made by the group through manipulative trading.
Time of India
07-07-2025
- Business
- Time of India
Jane Street to contest SEBI's manipulation charges: Reports
Jane Street rejects allegations Jane Street vs SEBI Live Events Pushback on exchange claims (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel Securities and Exchange Board ( SEBI ) has accused Jane Street , one of Wall Street's biggest trading firms, of running what it calls 'an intentional, well planned, and sinister scheme' to distort the country's markets. The Financial Times reported the regulator's findings on Monday. Reuters has not verified this Friday, SEBI barred Jane Street from trading in India and ordered it to return over 550 million dollars of what it describes as illegal profit. The ban follows allegations that Jane Street moved Indian bank stocks in ways that triggered large payouts on connected Street has told staff it will fight the ban. In a memo sent on Sunday to around 3,000 employees, senior management wrote they were 'beyond disappointed' by SEBI's 'extremely inflammatory' accusations.'It's deeply upsetting to see the firm mischaracterised this way,' said the memo, quoted by the Financial Times. 'We take pride in the role we serve in markets around the world, and it's painful to have our firm's reputation tarnished by a report based on so many erroneous or unsupported assertions.'Jane Street's trouble with SEBI links back to a lawsuit it filed last year against Millennium Management and two former traders who left for the hedge fund. In that case, Jane Street claimed the traders stole a valuable strategy that turned out to centre on Indian options. SEBI's probe zoomed in on Jane Street's trades linked to the BANKNIFTY index, which tracks India's major banking are now checking other parts of India's markets too. Jane Street has argued that the trades flagged by SEBI were nothing more than 'basic arbitrage trading', a normal practice in the order also says Jane Street ignored warnings from local stock exchanges. The firm disputes this point strongly. In the same memo to staff, Jane Street said the regulator used 'a metric for market impact and trading aggressiveness which seems disconnected from actual market dynamics'.The memo added that when exchanges first raised concerns, the firm 'immediately turned off its trading until we could better understand the exchanges' concerns' and later changed its approach to meet their 'preferences'.'Once again, we left this process feeling that we had reached an understanding of the concerns and reflected them in modifications to our trading behaviour,' the memo said. 'Since February, we have made ongoing efforts to communicate with SEBI and have been consistently rebuffed.'Jane Street has 21 days to object to SEBI's order and ask for a hearing. The firm says it is working on a detailed response and plans to fight the ban in the meantime, India's regulators say they may widen the investigation into other trades and instruments connected to the firm. Jane Street's future in one of Asia's biggest markets now hangs on how this fight plays out.
Indian Express
06-07-2025
- Business
- Indian Express
What was Jane Street doing in India, and why did SEBI bar It?
US-based firm Jane Street, known for its high-frequency trading strategies and dominance in global markets, has landed in hot water in India. The firm has been barred by SEBI, India's market regulator, for indulging in manipulative trading practices that allegedly led to unlawful profits in the Indian stock market. At the heart of the controversy is Jane Street's aggressive trading in the derivatives (futures) segment, where the firm executed trades designed not just to profit, but to sway the market itself. These strategies were anything but fair play — they were orchestrated efforts to influence prices in a way that allowed the firm to pocket massive gains. Jane Street is a proprietary trading firm, which means it trades with its own capital rather than managing client funds. Using this freedom, the firm allegedly made a staggering Rs 32,681 crore in profits, which were repatriated abroad, bypassing the spirit of market integrity. How it manipulated the market At first glance, Jane Street's presence in the Indian markets seemed like that of any seasoned global investor — active in both the cash and derivatives segments, placing trades across major stocks and indices. But a closer look by SEBI revealed something far more calculated. According to the regulator's findings, Jane Street's trades, particularly in NIFTY index futures, showed a clear pattern. The firm wasn't trading passively or reacting to the market — it was nudging prices upward, consistently placing orders at or above the last traded price (LTP). This pattern intensified in the final hours of trading, a critical window that often shapes the day's closing price. SEBI described it as 'non-neutral trading behaviour', a strategic attempt to influence prices rather than simply engage with the market. And the tactic wasn't random; it followed a well-known play in the trading world: 'marking the close.' Jane Street, regulators say, was executing what's known as an extended 'marking the close' strategy — placing large and aggressive buy or sell orders near the end of the trading session, with the intention of artificially moving the closing price of a stock or index. The closing price is critical, especially on derivatives expiry days, as it determines the settlement value for futures and options contracts. How Jane Street did this SEBI highlighted a telling example involving the BANKNIFTY index. In the early hours of trading, Jane Street loaded up, buying substantial quantities of BANKNIFTY stocks and futures. This buying spree helped prop up the index temporarily. Then, in a seemingly choreographed reversal later in the day, the firm dumped those same positions, aggressively selling what it had earlier accumulated. This push-pull tactic not only influenced the index's trajectory during expiry but also positioned Jane Street for maximum gains. Adding another layer to the strategy was Jane Street's Indian arm — JSI Investments Private Limited. While its trades in the cash market consistently ended in losses, its very presence served a purpose. Under Indian regulations, foreign portfolio investors (FPIs) are not allowed to conduct certain cash market trades like intra-day trading. By routing some transactions through this local entity, Jane Street effectively found a workaround without openly breaking the rules. Meanwhile, the firm's real activity continued in the futures and options market. The Indian entity's losing trades made it appear as though Jane Street was complying with a caution notice issued by NSE in February 2025. But in reality, its manipulative strategies were simply relocated to the derivatives segment. What looked like scattered trading decisions was, in fact, a well-coordinated effort. Jane Street's moves in index futures and stock-level trades worked together to support and steer the NIFTY index—especially near expiry, when even small movements can have massive financial implications. The play was subtle. The gains, massive. And the intent, according to SEBI, is unmistakably manipulative. Big moves, bigger profits The SEBI report reveals that much of the enormous amount of trading and position taking in F&O by the JS Group have been undertaken by the foreign portfolio investors in the JS group, and much of the profits arising from the prima facie manipulative schemes as identified in the 21 instances elaborated in the SEBI order have also been booked by them. In fact, during the examination period, the net profits booked in the FPIs in the JS Group amounted to Rs 32,681 crore, SEBI said. The magnitude of this profit is significantly higher than the average quantum of assets held by these FPIs in India as of the month ends between January and May, 2025, indicating that these profits have been repatriated. SEBI last week ordered the impounding of Rs 4,843.57 crore in alleged unlawful gains made by Jane Street through alleged manipulative trading practices and restrained it from accessing the securities market. Jane Street had ignored a prior warning from the National Stock Exchange four months earlier and continued with alleged manipulative trading activities. When concerns regarding allegedly manipulative trading practices by JS Group, a global proprietary trading firm, surfaced in early 2025, the NSE, acting under SEBI's direction, issued a clear and formal warning to JS Group in February 2025. The notice advised them to avoid high-risk activity in index options and refrain from any trading behaviour that could indicate manipulation. In response, JS Group informed NSE in February 2025 of its assurance to fully comply with applicable regulations. However, in May 2025, the group again executed what appeared to be manipulative 'extended marking the close' strategies — entering large, aggressive trades in Nifty index options around expiry closing — to move the index in their favour. These trades, carried out in May, blatantly disregarded the warning letter issued by the NSE on February 6, as well as the group's own formal assurance made to NSE that same month, according to the SEBI order. Proprietary trading and markets SEBI's recent action against Jane Street has sparked debate about the future of proprietary trading in India. 'Retail participation in equity derivatives has surged from just 2 per cent in 2018 to over 40 per cent in 2025. This influx fuels liquidity, volatility, and, with it, opportunity. Proprietary trading desks thrive in such environments, leveraging high-frequency and algorithmic strategies,' said Dinesh Thakkar, Chairman and Managing Director of Angel One. 'With millions of active retail traders and deepening institutional activity, India's market opportunity is structural, not cyclical and certainly not dependent on any one firm,' Thakkar said. 'When one player exits, others step in and often, very fast.' Many global trading giants are already expanding into India, setting up local entities, hiring talent, and investing in infrastructure amid expectations that large domestic consumer and investor bases will help shield India from global turmoil sparked by trade policies. 'SEBI's clampdown will bring sharper compliance and more robust governance thus, strengthening market integrity and raising the bar for all,' Thakkar said. Jane Street's actions raise questions Though headquartered in the US, Jane Street Group operates across major global markets and is run by decision-makers located outside India. The case raises critical questions about how foreign financial institutions operate in Indian markets, and whether current safeguards are strong enough to prevent sophisticated forms of market manipulation. For now, Jane Street stands barred—its trades frozen, and its reputation under watch. Some market experts believe the regulator should have stepped in sooner, rather than waiting for the NSE to issue a caution. Whispers about Jane Street's unchecked and aggressive trading strategies had been circulating in the market since early 2024. Derivatives are financial contracts that don't have value of their own — they derive it from something else, like a stock or an index. The National Stock Exchange (NSE) has become the largest derivatives exchange in the world, thanks to the sheer volume of trades it handles daily. In a well-functioning market, the price of a stock or index future tends to stay closely aligned with the price of the actual stock or index it tracks. That's because of arbitrage — a simple but powerful balancing force. If the future trades too high, savvy traders sell it, buy the cheaper stock in the cash market, and profit when both prices meet at expiry. If it trades too low, the process works in reverse. This built-in mechanism keeps prices stable and ensures the futures market doesn't drift too far from reality. However, in the case of Jane Street, SEBI found this natural balance being deliberately distorted. Instead of allowing prices to move freely and correcting any gaps through market forces, Jane Street's trades were designed to influence those very gaps. By executing large and aggressive orders, particularly near market close and around expiry days, they appeared to push futures prices in their favour, upsetting the delicate link between futures and the underlying assets. Headquartered in New York, Jane Street Group LLC is a global proprietary trading firm that began its journey in 2000, started by a small team of traders and technologists in a modest New York office. Over the years, it has grown into a financial powerhouse, with more than 3,000 employees, operating across five global offices, and trading a wide array of asset classes on over 200 trading venues in 45 countries.
