According to Indian regulators, every trading day Jane Street would:
1) buy large volumes of stocks and/or stock futures that are part of an index tracking India’s banking sector, early in the day,
2) subsequently place large options trades, betting that the index would decline or volatility would spike later in the day, and
3) later in the day, cash out of the large long positions, dragging the index lower, making far more money on the options trades than on the long positions.
Jane Street can and likely will claim the firm was only arbitraging away pricing inefficiencies, nothing more, nothing less. It was just business as usual, etc., etc.
However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.
I assume the moron in question was using Black-Scholes or some similar formula to price those options, and refused to update their prior when they lost money day after day. This happens quite a bit in derivatives markets.
If you're selling millions of dollars of options you're taking an extremely willing risk, not getting bullied.
Edit: Reading more about this, it looks like the counterparty is often a bunch of retail investors doing quick trades hoping the stock swings one way or the other, and that's not bullying that's gambling.
I agree with your edited point, and in response to sentiments I saw earlier in the thread—even gamblers deserve nominal assurances against cheating. My two cents, which I personally will be investing in wishes via my local wishing well, to which I’ve connected a dedicated fiber link to power my high-frequency algorithmic wish arbitrage desk.
Things like Black-Scholes (using past volatility of the underlying to model the probability distribution in the future) are often used by market makers to price options, but the vanilla version never is.
Any market maker pricing options with Black-Scholes won't be a market maker for long.
Black-Scholes is just a customer-facing description of the option (i.e, it provides greeks that everyone can understand). But it isn't used as a starting point.
In practice, MM will back out what the implied volatility is from current prices. Then a stochastic volatility model is calibrated against that.
No - no market maker is using stochastic volatility. (L)SV is only used for exotics.
Market makers use a tricked out Black Scholes where the 'secret sauce' is in how you apply the chain rule when you calculate the greeks.
That's not really how it works, the market making firms would essentially have to update their vol curves in response to that signal (BS being essentially just a coordinate change from price to volatility).
I think the point is that retail investors were selling the puts, they predictably sold every day (or more likely, they predictably bought calls which is almost equivalent), and there were no other sophisticated market makers in the market.
That changes the description of part 2 to "subsequently experience retail investors placing large options trades with them" which is much more defensible market making behaviour - their early buying was in anticipation of later demand and really did involve taking a risk.
To add to this, that behaviour would typically be OK in the US, with a good compliance department to keep you away from the worst of the grey areas.
If the SEC did investigate you for this, an important part of the case would turn on the extent to which your actions were "bona fide market making". And the regulator would also be more introspective about the market structure that allowed this to happen - why is there only one market maker? How did we allow a derivatives market much more liquid than the underlying?
Huh? I don't think the SEC would (just) apologize for letting you get away with manipulation of a significant portion of the US index funds just because they should have noticed you sooner.
Yeah that seems like it should push the premium higher. Even if it's some institution with very bad quantitative models eventually the careless put writers should run out of shares/capital to secure the puts with and get liquidated.
Yeah, I think volatility in the indian market was way too low, and Jane street just juiced it. normally that would be a losing proposition, but too many existing players were short volatility habitually… answer is not to kick Jane street out, but to enjoy the taxes Jane street pays on the gains…
Low volatility is good for everyone engaged in long term asset management. Jane Street just found a way to make everyone else less money while making a small amount for themselves.
it’s a known effect. Without going into details here, you can calculate first crossing time of a barrier in a stochastic process and observe that often the first crossing time decreases as the volatility increases. From there you can set one barrier at 0 (default) and draw your own conclusion.
I'm reminded of how the UK financial regulator banned "binary options" trading, since this was nearly always a scam run against unsophisticated retail investors who wanted to gamble and lost the majority of their "investment".
(one of the Yes Minister irregular verbs: I am providing liquidity to the market, you are long vega, he is a degenerate gambler)
> If options & futures are more liquid than the underlying, someone will be tempted to nudge the underlying.
This is a weird statement. Why would liquidity matter here? As a point of reference there are generally two types of options: (1) options that depend directly upon the underlying, like a Tesla stock option, or (2) options that depend indirectly upon the underlying, like options on S&P 500 index futures. The liquidity in category 2 is normally tiny. Cat 1 normally has far less liquidity than the underlying.
Why is the adjective "more" important here? Even if less, the opportunity to profit is still good, assuming that one chooses the path of market manipulation.
What matters is the volume rather than the liquidity per se, but the two are generally pretty well correlated. The point is that moving a market costs money, making a trade moves the market against that trade, so even if someone is deliberately trying to move a market they'll pay more than they could ever hope to recoup. The exception is when there's a derivative market that has more volume than the underlying - in that case profitable manipulation becomes possible, as you can spend to move the underlying, losing money, but making more money on the derivatives where you'd bought the other side.
> What is the difference between volume and liquidity for the purpose of this discussion?
You're the one asking "Why would liquidity matter here?", you tell me. Like I said, they're correlated well enough that it doesn't really matter as far as I can see.
I have a suspicion this has been happening with a particular MAG7 stock these last few months, but I can't fully convince myself such a large stock can be manipulated like that.
Of course large stocks can be manipulated like this. But there is also normal oscillation, repeatable human psychological behavior (e.g. momentum, mean reversion), and just crowd murmuration. Be careful using your eyes to gleam patterns from graphs; you may find if you try to monetize these they vanish before you.
except Tesla is not just car company but a taxi company and energy company and AI company and robotics company… 6-7 more decades and orders will be pouring in :)
> but I can't fully convince myself such a large stock can be manipulated like that.
I have the same initial reluctance to believe it that you do, but less so when I remind myself that we live in a world where the Social Security Administration sent out a mass email praising the passing of the "big beautiful bill".
I think our built-up understanding of how the US government functions at a baseline has not caught up to recent events. Especially in regards to how much regulatory bodies are doing their traditional jobs vs being forced to sit on their hands, or in some cases just not even existing anymore.
As someone living in a country with very weakened democracy, getting emails from the government was the point I realized things were really messed up. If this is now happening in the USA, well, good luck.
We got email from a government agency that is weakened by the passage of a new law celebrating the passage of said law, so yeah that's not looking great.
When I worked at Scotttrade in 2010, I vividly remember my coworker telling me that this is what they did with the money too. I remember being surprised to hear that it flowed out in the morning and flowed back in in the evening. I never understood why that would make sense till I read your comment here.
It’s all hearsay; I’m just reporting what I heard. I don’t know the implications of it, but maybe this isn’t exactly uncommon behavior, even if it’s market manipulation.
The coworker said that the money flowed overseas too, if that helps contextualize it. No SEC, no problem, right?
Looks like Jane Street is an American firm, so, this all lines up and corroborates what you’re saying. What we’re seeing is probably the first time a government other than the US has reacted to this behavior.
I'm sure they're doing it domestically too, but due to the relative size of the markets and currency conversions what amounts to a serious disruption in the Indian stock market would just be background noise that gets ignored in a US market.
I also worked at Scottrade in 2010 and I can assure you that Scottrade wasn't doing arbitrage or marking markets in this manner. I'm dubious of your coworker.
Seems pretty straightforward depending on what large means here. When I worked in an algorithmic execution business of a broker, we had to always cap our order size as a percentage of average trade size and also cap our participation so we couldn’t ever be more than a certain % of the total market volume. This was precisely so that we wouldn’t ever push the market in the way JS are accused of doing here.
If you’re trading a large % of the market volume or your orders are large relative to anyone else, you can’t claim to be arbitraging as you are executing way beyond the capacity of any kind of arb. You’re just doing the old fashioned abusive market corner in fancy clothing.
Seems presumptive to slander an entire nations regulatory group on a single/couple of examples. By that metric the regulatory group in the US is completely bought out since they let 2008 happen.
There's a difference between "letting" something happen and actively doing something – it shows very different intentions. The events of 2008 were also caused by a cascading system failure involving lots of different components, which are hard for a single human to fully understand. The actions of the Indian regulator in the Adani case are much simpler, and their motivation is straightforward.
One rotten regulator doesn’t mean you get to view the entire Indian regulatory environment as unreliable though. It’s the 4th/5th largest financial market in the world.
To say it plainly, SEBI has been exposed for their selective enforcement on high-profile entities. If Jane Street’s in trouble with SEBI then it’s only because they failed to secure the same privileges as Adani, or Karvy, or Ramkrishna, or Sapre, or Kamath.
A market being large doesn't mean it has large participants.
But even then (and as seems to be the case in this instance), the market might have large participants because they are the ones doing the gaming, and are therefore happy to participate (even if trust is low).
Examples of the 2023-2025 activities of the Indian securities regulator SEBI seem pretty relevant to current news involving SEBI here in 2025. Which is the topic of discussion. Whatever US regulators were doing in 2008 has nothing to do with this.
> Seems presumptive to slander an entire nations regulatory group on a single/couple of examples.
How about Germany's BAFIN regulator after VW's Deiselgate or Wirecard bankruptcy? BAFIN's response was weak and slow in both cases. I am willing to slander them for "just" those two mistakes.
That is not slander, you are being more then generous with them. BAFIN's employees were trading Wirecard for profit to skim profits, not just "weak and slow". Calling them highly corrupt is probably a fair statement and not slander
But those have a tangible return to society that people flock to. Almost the entirety of Google products is open to anyone on Earth to just open up an use because that ad model is so successful. People click high value ads and it covers to cost of video distribution to anyone with an cell phone and wifi.
Jane street on the other hand is arbitraging against regular folks money, so they can distribute the gains to their select high value clients. There is no free office productivity suite and limitless "How to repair cell phones to start your own business" videos distributed to everyone for free.
In a way, they are doing opposite functions. Ad media takes from people who buy stuff and gives to people who don't (or cant't) buy anything. Jane street and their ilk take from regular people and give to those who have everything already.
Your "ad" people are rotting the brains of entire generations by addicting kids using many different tactics (insta, YouTube shorts, TikTok....) . Please spare us the moral judgement.
"brain rot" is a subjective criticism. objectively speaking, the kids are making art and sharing it with each other. it's at worst an extension of the entertainment industry. you can not like the art, but it's at least art.
the finance industry doesn't produce anything of value. it just turns $1 into $2 and liquidates productive industries.
By this generation please clarify you mean the ones that started this campaign in the 70s, not the subsequent lost generations of people who can barely envision owning a home with a graduate degree in engineering
here in the coastal West US, a mid-career policeman does not make enough money to buy a house and have children. A credentialed school teacher does not make enough money to pay RENT in many desirable places, and nowhere near enough to have children of their own and buy a house.
Major city police are typically some of the highest paid public employees of any area. Often with a more generous pension tier than what is given to other public employees. Ie starting pay for SFPD is $115k-$164k https://www.joinsfpd.com/entry-level-program
Extrapolating your answer, Most mechanical engineering firms are not in the same areas as the cheap houses. So on your point, most mechanical engineers cannot buy a house that they can live in and get to work.
Most people with an engineering degree are probably in a relationship, so they don't need to buy a house on a single salary.
There are plenty of houses for sale below the average price, just as there are plenty above.
Buying isn't necessarily the best option anyway. House price returns in the UK are somewhat below stock market returns, so as a pure investment it doesn't make sense. Unfortunately, we have the narrative in the UK that we should aspire to own houses, but that doesn't mean it's necessarily correct!
Over half the UK adult population is married. According to the ONS, 61% of the population aged 16 or above is living with a partner. [1]
Unless the demographics of those with engineering degrees is significantly skewed towards singles, this feels like a very valid assumption. Of course, you might have access to better statistics by profession.
If you get a real engineering degree instead of computer science slop, then your options for where to live and work (without relying on WFH trends going the right way for you) open up substantially.
I guarantee you, it's harder in 90% of places in the world (accounting for buying power/price of real estate). You guys don't understand our privilege.
You can buy an f'ing house. In places like Ukraine people make $100/month and apartments are $50k(and I'm talking before the war). There, it's LITERALLY impossible.
What people here are describing is that things should be better, and I agree, but words matter.
In 2021, the median annual salary for software engineers in Ukraine ranged from $30,000 to $48,175, depending on location and experience. Some specific figures include $30,000 in Kyiv, $29,000 in Lviv, and $24,000 in Kharkiv. Remote software engineers in Ukraine had a median salary of $48,175.
It's quite below the EU median, but definitely not $100 a day.
BTW $100 a day is $12.50 a hour, which is more than the federal minimum wage in the US ($7.50 or so), and only $4 below California's minimum wage, $16.50.
That last one would be considered a small starter home in my MCOL city and is literally 10x the cost for 300 less sqft of my current home. It's a total joke.
2 FTE Sr SWEs at Google would struggle to even get the downpayment for that last one. The mortgage is like 80% of their after tax salary.
Because they literally don’t need to, there is so much more in life than money. Current tech culture is garbage in terms of defining success, whole social media is filled with posts defining success as working 24/7, exploiting people around you and making exorbitant amounts of money.
A hardworking and smart person in tech really doesn’t need to try hard or sacrifice much to live a comfortable life in terms of finances. Hard part is the rest of the things in life really.
The criticism is largely of the system. The mechanism by which capitalism can improve society is by having pay be a incentive to create things that improve society, which people will then choose to purchase.
When the incentive instead rewards "how much money can you extract from others without improving their lives at all" we've headed in a very dangerous direction. You get the "we can make more money by making our product more aggravating" motivation that leads to dark patterns and all sorts of problems.
This sort of market manipulation stuff is just a very clear example of this pattern. Smart people not building useful products but instead fighting to crank a machine so that it spits more money in their direction.
worse, those are the active smart people doing that.. for each one of them there are a hundred others trying to do everything and anything to become one of those.. its a pyramid. The competition between individuals is a feature. You bet it is on the lips of every one of those individuals their "top" credentials that sit them in that trading seat. In other words, for every quant geek on that trading group, there are a thousand other "almost top" people using their time, talent and effort to try to be one of those inner circle ones.
Brightest minds in the world from what I can tell. They are particularly sickening in the way they specifically target certain demographics to come and leech for them.
Imagine becoming highly educated and then just using that ability to cream off the output of people who labour every day producing things that are actually useful. The tragedy is all the signals from society are saying this ok. Nobody questions the money. I got excited thinking we would 15 years ago, but nobody cares.
I guess if you're bright enough to come up with a solution you could be like Satoshi, or you could just work for Jane Street and suck as much as you can before you die.
Huh. Interesting point. I guess I never thought about it when JS were the secretive OCAML hacking prop quant fund, but if they become just another use-size-to-win badguy I can see the angle.
"I guess if you're bright enough to come up with a solution you could be like Satoshi, or you could just work for Jane Street and suck as much as you can before you die."
the outcome is the same. you're sucking money out of people.
people who get stuck in finance - especially trading - are not that bright IMHO compared to the hopelessly curious stubborn ones who go into philosophy or hard sciences or other areas of research.
Much simpler: most of the instruments traded have no fundamental returns, so people can dispense with the pretense of running a real market and go straight to the gambling and manipulation that they want.
Most exchanges do not reveal counter-party information smaller than the broker level. So you wouldn't know just from looking at market activity the same person causing the large futures move was also taking large options positions.
The pattern was exploitable only on the specific days that Jane Street was allegedly manipulating. How would you have figured out, without counterparty information and before noisy sales start dragging down the index, that day X is a manipulation day?
How would you have identified that there's even such a thing as a manipulation day? Do you have a model that tells you the objectively correct number of days a non-manipulated index should be lower at close?
Usually, everyone does do that, which is why only hard-to-detect patterns remain profitable. Not something obvious like "buy options in the morning and sell in the evening" as in this example.
But maybe Jane Street only traded like this on some days, so you would need to know whether they had done so before you could hope to exploit them.
Bloombergs Matt Levine does a good analysis of this and comes to the conclusion that the example the SEBI gives looks a lot more like arbitrage than manipulation. They were selling zero day options to customers and hedging with the underlying stock, which reduced the cost of the options to customers (whilst making a ton of money).
> The difference can be subtle, and I often joke that the difference between legitimate trading and manipulation is whether you send your colleagues an email saying “lol I sure manipulated that market.”
I am not so sure, since the article does not explain the biggest source of profits which is the put-options that were "bought" by jane street ! It only talks about options that were "sold".
> However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.
I am unsure that the US SEC would agree with you. Buying and selling "a lot" is not clearly market manipulation in the US.
Finally, in my view the India SEBI rules are insanely vague and are written to grant a lot of leeway to the regulator.
The real problem that no one is talking about: Why is India allowing its derivatives markets to explode? An estimated NINETY percent of retail derivs "investors" (I prefer the term "gamblers") lose money in India. Lots of these loses are gains for foreign banks and hedge funds. India: What the hell are you doing!?
It’s legal gambling (same as the retail crypto and stock trades in the US). I’d expect that the legalisation of sports markets in the US has meaningfully moved exploitable punters out of the markets and into the bookmakers.
In the UK, unlisted derivs (CFDs, etc) dealers that target retail are required to display in print and TV adverts what percent of customers lose money. It is always way more than 50%!
I think the SEC would say it's about intent. If your intent for buying/selling is to impact the price rather than buying/selling the asset in question, then you are trying to manipulate the market.
The size question is important here due to the fact that large quantities are likely to influence price (and everyone knows this) so you might need an strong alternative explanation for your actions.
My understanding is you need to be able to actually the market to be called market manipulation (e.g. pump-and-dump). If Jane Street alone can move the market in 1), it seems like the Indian stock market is not really liquid...
Irony is that jane street hires from prestigious Indian schools too, for pretty obscene salaries. These salaries get hyped and celebrated over newspapers.
I’m not sure you are seeing it clearly..or have any trading experience whatsoever. They took substantial risk. There is always someone bigger so if they were wrong they could have been buried. Then they reversed. If there are allegations of insider trading or collusion or something else then I’m ready to pile on but I don’t see anything here.
“Manipulation” is what? You want to create a rule that says a firm can’t buy more than x shares/dollars/% in a certain amount of time? Or if it does it has to hold onto those shares for a minimum time? A firm should be able to buy as much as it wants, subject to its margin requirements, and then sell whenever it wants, be it one second, one minute, one hour, one day…later.
I disagree. I don't think transacting for transacting sake is a good thing. If anything I just see it as a vehicle for both obfuscation, and a means with which to arbitrage info asymmetry against retail investors.
And no, I don't think merely adding liquidity is worth that being practicable and nigh-impossible to unwind.
all that OCAML we only hire the smartest is often a veil for what is really a simpler operation that is borderline illegal. probably alot of employees dont even really understand the systems they work on
> However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation.
Everything is public. How is Jane Street manipulating the markets? Feels more like the Indians are sore losers because they couldn't see the patterns that Jane Street did and they lost some money. They should up their game, not punish the winner.
Unsurprising that unethical but "righteous" crooks like SBF and his pals came out of that place.
I imagine Jane Street will also justify this with some EA bullshit, or like Soros during the 97 crisis just say "someone would do it ; may as well me".
I never quite understood why market manipulation is illegal. If market participants make emotional or irrational decisions detached from fundamentals, it should be on them.
While markets are used as a form of gambling, they also have a prosocial purpose, namely to allocate capital which improves the economy and society at large. Market manipulation increases market volatility and hence hurts efficient capital allocation, without some other benefit for the market. Besides that, it requires large amounts of capital to do, and hence can be effectively regulated.
Most of the stock market activity is secondary trading, which has little to do with allocating capital. Trading existing shares just redistributes ownership.
The stock market has a number of essential components without which it could not exist, all of which support it's role in allocating capital. If there was no secondary market to sell their stock to, someome might not invest in the first place. If there were or were not market manipulators cheating others out of money, that would make no difference as to whether someone invested in a company.
I didn't say stock markets don't serve a useful purpose. Regardless, my original point is simply that traders should focus on fundamental value, not try to guess what others are thinking. If they choose to play that game and get burned, that should be on them. There's no real necessity to regulate "market manipulation".
1) buy large volumes of stocks and/or stock futures that are part of an index tracking India’s banking sector, early in the day,
2) subsequently place large options trades, betting that the index would decline or volatility would spike later in the day, and
3) later in the day, cash out of the large long positions, dragging the index lower, making far more money on the options trades than on the long positions.
Jane Street can and likely will claim the firm was only arbitraging away pricing inefficiencies, nothing more, nothing less. It was just business as usual, etc., etc.
However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.