Market regulator 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, synchronised trades across cash, futures & options markets to manipulate equity index levels. 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 Rs4,843 crore in alleged unlawful gains.
We will watch with interest how the case progresses. The Indian judicial system is notorious for routinely letting "untrustworthy actors' 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?
Asking, as Romans would, in a similar situation—Cui bono (who gained an advantage which can help to identify suspects or motives)—the answer becomes clearer. Remember, we have been here before. SEBI’s own study from 2025 laid bare a sobering statistic: over 91% of individual traders lost money trading futures and options (F&O) in FY25.
The regulatory response?
Pop-up warnings on trading platforms—a useless daily irritation while logging in.
I had mentioned then, nothing will really change for investors because whether traders win or lose, one group always gains: the rent collectors of the stock market system, who also happen to be the rule-makers.
The answer to cui bono is in plain sight, not even hiding. According to SEBI’s 2023 analysis, in FY21-22, over and above the net trading losses incurred, losers in the group of active traders were out of pocket by an additional 28% of net trading losses as transaction costs. Even active traders making trading profits incurred 50% of such profits as transaction costs! Transaction costs for traders are, in turn, revenues for three entities.
Apart from the smart high-frequency traders like Jane Street, this trinity—state, exchange, and regulator—feeds off the steady churn of hopeful punters in the derivatives market. There are no incentives for meaningful reform.
The Central Government: Securities transaction tax (STT) revenues have exploded, from just Rs6,426 crore in FY14-15 to an estimated Rs55,000 crore in FY24-25. More than 40% of this likely stems from F&O trading. That is a compounded annual growth of 24%!
Whether a Jane Street games the system or not, or whether 90% of F&O traders lose money or not, the government has been the biggest beneficiary of the F&O casino.
The Exchanges: Derivatives are also the golden goose for Indian exchanges, with almost all the money going to the National Stock Exchange (NSE) due to its near-monopoly status. NSE began offering colocation services to high-frequency traders in 2009 and now rakes in colossal revenue from derivatives—estimated at Rs15,000 crore–Rs16,000 crore in FY24-25, accounting for 90% of its total income.
Its March-quarter net profit jumped 47%; its dividend, an eye-watering 3,500%. Operating margins stand at a near-cartelistic 78%. In 2015, NSE was racked by a co-location scam and in 2025 it had to be goaded to send a warning letter to Jane Street by SEBI.
This Is No Surprise: NSE has every incentive to expand the casino, not regulate it. It has even less of a motivation than ministry of finance (MoF) to cut down on F&O.
SEBI: Even the regulator has a stake in the status quo. In FY23-24, SEBI earned Rs1,851 crore from regulatory fees and subscriptions. Of this, Rs1,066 crore came from turnover-based fees—driven largely by the F&O segment which accounts for roughly 90% of total trading turnover.
So, the real problem statement is…
Venture capitalists often ask start-up founders for a crisp 'problem statement' or 'what is the problem you are going to solve?'.
What is the problem statement then afflicting the F&O market? It is not how to prevent Jane Street-type of market manipulation, or how to 'protect' innocent traders from losing money.
It simply is: what is the socio-economic benefit we are deriving from the current derivatives market?
SEBI claims that F&O enables efficient price discovery, improved market liquidity and permits investors to manage risk. I humbly state that it does not do any of this. The cash market runs parallel to the F&O market and, hence, does not aid in price discovery or liquidity and only a small number of investors use F&O for hedging. The rest is socially harmful, speculative froth.
In July 2023, stock derivatives volumes were 422 times that of the underlying cash market. In F&O, India has created a standalone, highly speculative market which has catapulted India to the top of the global league tables: NSE is now the world’s largest derivatives exchange by volume; in early 2024, perhaps 84% of all index options trading was occurring in India, according to the Futures Industries Association.
That’s a peculiar badge of honour for a poor country where 800mn (million) or 57% of the citizens receive government food rations every month. One might forgive sceptics for wondering if India has built the world’s most energetic casino in the name of financial development. Until India honestly confronts the question of who benefits from its frenzied F&O market, the answer to what to fix will remain elusive. For now, the wheel spins on.
(This article first appeared in Business Standard newspaper)
Manipulation is possible because there are market irregularities or the market isn't structured properly. In other words, rules and regulations make the market imperfect and exploitable.
A free market would mean even bad actors will find it difficult to exploit. Of course, it's theoretical, but unless you have a war-size chest to move markets, it's not possible. An elephant can easily be spotted and kicked out. Corollary, simple rules makes it tough to game the market.
When a gambler games the house, the casino has every right to kick out the gambler. Even "bad actors" unwittingly play a role in the correction mechanism, by scoring self goals and signalling other casinos to watch out for this bad guy.
The larger point is -- having pointless rules and regulations makes things worse, not better, and easier to game the system.
I don't know about F&O, but if a Jane Street can pull it off in India and not Singapore, it's telling us that there is something wrong with our regulatory system and not the market. The F&O market hasn't changed since ancient Greek civilization (they did not have pointless regulations, did they?) and will continue to flourish well into the future. There's always a market for risk mitigation (and speculation).
Govt. Or SEBI are really worried about small investors, it should reduce STT and transactional charges. Negligence, callousness & unethical greed are the hallmarks of the present day Indian Govt.
The biggest business person in India is not Ambani or Adani, it is the government of India, a monopoly which earns money by taxing others and not through its own efforts. It should be penalised for its shortcomings and pay up investors rather than penalise Jane Street
I fully agree with your analysis. If the. Govt. Or SEBI are really worried about small investors, it should reduce STT and transactional charges. In fact STT was introduced when there was no LTCG. Now it has been brought back, STT should be abolished. Govt. Is taking the benefit of poor people who either earn their livelihood from trading or are tempted to make quick money or are crazy to the market. what is the necessity to have index options as a product? This is nothing but encouraging speculation. Whole in villeges police pick up those who play cards, here it is a govt sponsored betting.
In my perspective the Individuals who shows income at-least more than 1 crore only should be allowed to play the F & O game.
This will save the small investors who don't know what derivatives are and just playing with calls from telegram & WhatsApp using discount brokers App.
Small Investors just think they are playing a game that kicks dopamine on every win.
Small investors not only make losses, they pay in brokerage for discount brokers and pay for these call givers through social media.
Derivatives are essential for price discovery, so it can't be banned but banning small investors is quite possible.
So here the Question comes ? Won't big investors lose money ?
People with 1 crore income will obviously know the risk and he won't play this game instead.
Derivatives are for institutions and not for Retail investors.
I am writing to express my concerns regarding the recent issues surrounding financial losses and gains. While I understand that derivatives trading can be complex, I believe that those who do not comprehend the intricacies of the market should refrain from engaging in such activities.
Regulators are responsible for monitoring and addressing any instances of malpractices or manipulative behavior. Those found guilty should be subject to severe penalties, including the forfeiture of their profits and the imposition of substantial fines.
However, I question the necessity of conducting studies that focus solely on financial losses without addressing the underlying reasons for these losses. If individuals are experiencing financial losses without resorting to complaints, it is imperative to investigate the root causes of these losses rather than solely focusing on the potential beneficiaries.
In my opinion, it would be beneficial to implement mandatory certifications for F&O trades and increase the lot size. Additionally, regulators should consider increasing the margin limit to minimize the impact on economically vulnerable individuals. This approach should prioritize the protection of the economically disadvantaged rather than solely focusing on identifying those who may be benefiting from the market.
The United States has successfully implemented day expiry, which has eliminated the need for excessive trading and reduced the risk of market volatility. It is crucial for regulators to remain vigilant and actively combat any form of malpractices to ensure the integrity and fairness of the financial markets.
The National Stock Exchange (NSE) has made significant strides in terms of technology and financial infrastructure, positioning itself as the most technologically advanced market in the world. It is essential that the NSE continues to thrive in a manner that aligns with ethical standards and legal regulations.
????Brilliant Debashis ji. Rent collectors here are plain buccaneers who are thriving on the frailty of small traders. This must stop. I wonder whether SEBI has a conclusive study on the basis of which it has claimed that this casino leads to efficient price discovery. SEBI must suspend the derivative trading for a month and study the price discovery before making this lofty statement. The derivative trades should be allowed only to those who clear NISM or NSE / BSE certification tests.
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
A free market would mean even bad actors will find it difficult to exploit. Of course, it's theoretical, but unless you have a war-size chest to move markets, it's not possible. An elephant can easily be spotted and kicked out. Corollary, simple rules makes it tough to game the market.
When a gambler games the house, the casino has every right to kick out the gambler. Even "bad actors" unwittingly play a role in the correction mechanism, by scoring self goals and signalling other casinos to watch out for this bad guy.
The larger point is -- having pointless rules and regulations makes things worse, not better, and easier to game the system.
I don't know about F&O, but if a Jane Street can pull it off in India and not Singapore, it's telling us that there is something wrong with our regulatory system and not the market. The F&O market hasn't changed since ancient Greek civilization (they did not have pointless regulations, did they?) and will continue to flourish well into the future. There's always a market for risk mitigation (and speculation).
This will save the small investors who don't know what derivatives are and just playing with calls from telegram & WhatsApp using discount brokers App.
Small Investors just think they are playing a game that kicks dopamine on every win.
Small investors not only make losses, they pay in brokerage for discount brokers and pay for these call givers through social media.
Derivatives are essential for price discovery, so it can't be banned but banning small investors is quite possible.
So here the Question comes ? Won't big investors lose money ?
People with 1 crore income will obviously know the risk and he won't play this game instead.
Derivatives are for institutions and not for Retail investors.
I am writing to express my concerns regarding the recent issues surrounding financial losses and gains. While I understand that derivatives trading can be complex, I believe that those who do not comprehend the intricacies of the market should refrain from engaging in such activities.
Regulators are responsible for monitoring and addressing any instances of malpractices or manipulative behavior. Those found guilty should be subject to severe penalties, including the forfeiture of their profits and the imposition of substantial fines.
However, I question the necessity of conducting studies that focus solely on financial losses without addressing the underlying reasons for these losses. If individuals are experiencing financial losses without resorting to complaints, it is imperative to investigate the root causes of these losses rather than solely focusing on the potential beneficiaries.
In my opinion, it would be beneficial to implement mandatory certifications for F&O trades and increase the lot size. Additionally, regulators should consider increasing the margin limit to minimize the impact on economically vulnerable individuals. This approach should prioritize the protection of the economically disadvantaged rather than solely focusing on identifying those who may be benefiting from the market.
The United States has successfully implemented day expiry, which has eliminated the need for excessive trading and reduced the risk of market volatility. It is crucial for regulators to remain vigilant and actively combat any form of malpractices to ensure the integrity and fairness of the financial markets.
The National Stock Exchange (NSE) has made significant strides in terms of technology and financial infrastructure, positioning itself as the most technologically advanced market in the world. It is essential that the NSE continues to thrive in a manner that aligns with ethical standards and legal regulations.