How Jane Street Group drove illegal profits: Expert decodes SEBI's Rs 4,843 crore chase

ANI

Mumbai (Maharashtra) [India], July 4 (ANI): In a major development, the Securities and Exchange Board of India (SEBI) has passed an interim order against the Jane Street Group, to impound Rs 4,843.57 crore of illegal gains by manipulating the securities market, particularly on expiry days of Bank Nifty options. ANI spoke with various experts to decode the trading strategy adopted by JS group to make undue and illegal profit from market movements at the cost of retail investors. Speaking to ANI, Uttam Bagri, Managing Director of BCB Brokerage, explained that Jane Street followed a strategy that misused the connection between the cash and derivatives segments. "What they did was, in the cash segment, they kept taking strong long positions. At the same time, in the derivatives segment, they were going short, with a much larger position," Bagri said.

Transcript

00:00In this particular case, the way we read the order, it seems that there's a particular way of

00:05trading of chain straight which was not found appropriate. And Sebi issued, in fact, the exchange

00:12issued a letter to the team, hey guys, this kind of trading is not proper, please, whatever they

00:19would have written there. And nothing seemed to move and finally Sebi has passed this order.

00:24It's an interim order. And in fact, the allegations of Sebi are around two broad areas. The first

00:33area is that you've kind of manipulated a market. What you did is, in the cash segment, you keep

00:39on taking strong long positions. At the same time, in the derivative segment, you were going short,

00:46much larger than what you were long in that cash. And then, after your limited position,

00:51suddenly you started squaring up your cash position later in the day, got the prices down,

00:58and then in your huge short positions in derivatives, it made a lot of money.

01:03So that is angle one. The angle two is just kind of impacting the closing prices,

01:12where on an expiry day, you took a huge position in the derivative segment, and then you made strong

01:18cash positions in such a way that your positions in the expiry, in the derivatives, make you a lot of

01:26money. These are two broad areas that seem to have come out. So sir, this penalty of over like

01:354,843 crore, it's among the highest Sebi has imposed. So sir, what made this case so significant that

01:44Sebi has imposed such a huge penalty on that group?

01:49The JP has been always clear. You, however big or small you may be, if you do something wrong,

01:55which we believe is wrong, we are going to come after you. And so you may be the biggest guy on

02:03the planet or the smallest guy, it doesn't matter. If there is anything, any of your behavior that

02:09I believe as Sebi, that's what they say, impacts the market, it is manipulated, it is not normal,

02:14I will come after you. And that is the messaging Sebi has always followed and they continue to do that.

02:19Okay, sir. So what is this intraday index manipulation? Sebi used this term. So like for

02:27the readers, if we can explain it in simple language, like what the company did?

02:33So the allegation is, as you would know, the cash market and the derivatives market are connected.

02:40But the number of players in the cash market are lesser and number of players in the derivatives market

02:44are much more. So the allegation is, first you took a huge position, you took some position in the cash

02:52segment, right, which kind of made, either made the market go up or made the market stabilize or

02:59show that there's some interesting buying interest there. But at the same time, you were going big

03:03time short in the derivatives. All right. And so you have this position, say in the morning,

03:10and then by late end of the day, you square up your cash position very sharply. You keep on selling

03:15it very sharply. And because you're a large player, the market tends to move. The market tends to move

03:21and the cash would make a loss of say, 100 rupees. But in derivatives, because of this, we will probably

03:26make a profit of say, 1000. And this is the kind of behavior which they say, keep us, this won't work.

03:33This is not proper. And sir, how this entire false bullish trend has impacted the retail investors

03:41in the dividend market? So personally, sir, there are a lot of players, as the CB order says,

03:47lots of players who trade in the dividend segment. And every retail player or every stakeholder,

03:55he's there to pay the price risk. If something happens, prices go up, okay, fine. If they go down,

04:01fine. What I don't want to pay for is manipulation risk. I should not be made a fool of. If something

04:08happens, if a war breaks out, market falls, I lose money, fine. That's the risk I'm ready to take.

04:13I'm ready to take every crisis. I'm ready to take the economic risk. I'm ready to take a political risk.

04:19But as a market player, I am not happy taking manipulation risk. But having said that, this is

04:25the allegation of regulators from this order. Manipulation happened and they've taken a strong

04:30action against it. And sir, CB in its order mentioned that, okay, right now, we are just

04:37making some penalty or impounding jointly and severely the profits they made on a particular

04:44timeframe. They also mentioned that on these particular dates, you manipulated the derivative

04:49segments. So CB order says that they are impounded jointly and severely. What does it mean? Like,

04:54more actions will come or like, it's just... No, jointly severely the technical point,

05:00I understand that when there are three, four people involved or a group of people involved,

05:04all of them are liable. One cannot say that he is liable, I am not liable. So everybody is liable

05:11for that thing. That is what jointly severely means. It's my understanding.

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