F&OMO and more: How Jane St shook up Dalal St

In April 2024, Jane Street — one of the world’s most secretive trading firms — did something uncharacteristic.

- Charles Assisi

It went to court. The firm sued rival hedge fund Millennium Management in New York, accusing two former employees of stealing a trading strategy. Not just any strategy. One that, according to Jane Street, had earned it nearly a billion dollars. The focus of the trade? India’s Bank Nifty options.

That's where this story begins, say Krishna Jha, a Bengaluru-based investor, and Ashwani Gupta, an Ahmedabad-based futures and options trader.

The lawsuit was settled quietly later that year. But by then, the secret was out. A little-known index with just 12 stocks had become the centrepiece of one of the most lucrative — and contentious — trading schemes in global finance. And soon, India’s market regulator Sebi was asking hard questions. Who was gaming the expiry-day moves in the Bank Nifty? How? And more importantly: why had no one noticed?

It wouldn't take long for the investigation to circle back to where it began — with Jane Street, and a market that turned out to be more gameable than anyone had publicly admitted.

And so, every Thursday, till earlier this year, the same script played out across India. Expiry day. The kind of day when seasoned traders keep one eye on the screen and the other on the clock.

Somewhere in Surat, a young trader would open his app. He had placed a trade on Bank Nifty options — a side bet on where the market will land by 3.30pm. If the index closed where he predicted it would, the payout would have been big. If it did not, the bet disappears like it never existed. He never fully understood how it worked. But the buy-in was just under 35,000; small enough to feel harmless.

By 3.25pm, the screen would be bleeding red. The market would whip up. Then down. His trades would be worthless. And it would happen time and again. What he didi not know, and what even many veteran traders didn’t, was that someone else might have seen this coming. Or worse, helped shape it.