Jane Blitzes D-Street

SEBI may have rapped Jane Street, but the event exposes a can of worms. How many traders and smart schemes have been manipulating India's stock market?

- RAJEEV NARAYAN

"Investing is a dreary pastime, like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas." — Paul Samuelson

Here's one for the history books in India's financial capital Mumbai, a saga that wouldn't be out of place in the cheesiest of boardrooms or the sleaziest of shanties across the country. New York-based trading firm Jane Street Capital allegedly made Rs 36,502 crore in the Indian stock market in just two years, of which a whopping Rs 4,800 crore was 'printed at will' through market manipulation. The firm with a docile-sounding moniker brutishly bared its fangs and turned the market into its personalized ATM, using a strategy that was clever, devious and very, very profitable.

Jane Street conducts its high-frequency trading operations in India through four entities, two of which are domestic. The fantastic thing about this reported financial maneuvering is that for this 'fraud,' the firm relied on 'incompetence,' which saw it begin its investments with truckloads of losses. Experts are gleeful, saying the loss wasn't due to incompetence—it was classic, genius-level money-creation at work. Jane Street, meanwhile, has repeatedly denied any wrongdoing.

If we speak of the specifics of the incident, the trade began by buying into the Bank Nifty between 9.15 am and 11.47 am on January 17, 2024—stocks worth Rs 4,370 crore were picked up. The buying spree pushed indices up, after which Jane Street sold expensive 'calls' and bought cheap 'puts,' claim the authorities. In the process, it built up Rs 32,115 crore in bearish position (7.3 times its stock position). Come afternoon, between 11.49 am and 3.30 pm, the trading firm dumped all its stocks for Rs 5,372 crore. This pushed the index down and made 'puts' profitable, while the 'calls' were all but worthless.

Worthless? Not Really