F&O market: The real issues

The Securities and Exchange Board of India (Sebi) last week issued a damning preliminary order against Jane Street, a New York-based trading firm, accusing it of orchestrating large, synchronized trades across the cash, futures, and options markets to manipulate equity-index levels.

- DEBASHIS BASU

The trades allegedly profited Jane Street handsomely while inflicting losses on India's ever hopeful retail investors. In righteous indignation, Sebi declared that "the integrity of the market and the faith of millions of small investors can no longer be held hostage to the machinations of such an untrustworthy actor". Sebi has banned Jane Street from India's securities markets and impounded ₹4,843 crore as alleged unlawful gain. We will watch with interest how the case progresses. The Indian judicial system has allowed "untrustworthy actors" to escape due punishment. But what does the episode reveal about India's derivatives market itself?

Popular reformist responses to the Jane Street saga are both predictable and misdirected. Suggestions include beefing up surveillance, raising margin requirements, curbing expiry-day trades, and educating retail investors about the risks of options trading. Foreign and domestic traders should be treated equitably in tax matters. All sensible—but peripheral.

Cui bono?