In scandal started during Madhabi Buch tenure at SEBI, Jane Street may have gained 1 trillion rupees: Sources
&imwidth=600&imheight=450&format=webp&quality=medium "In scandal started during Madhabi Buch tenure at SEBI, Jane Street may have gained 1 trillion rupees: Sources")
Madhabi Puri Buch
The fresh revelations came days after the market regulator barred the US-based high-frequency trading firm from Dalal Street.
The scope of the Jane Street scandal may be larger, with illegal gains made by the US-based firm amounting to as high as Rs 1 lakh crore (One trillion rupees), Zee Business reported, citing sources. The SEBI had said that the illegal gains were to the tune of Rs 4,842 crore. The sources further said that the firm's involvement in alleged market manipulation extends beyond the known four entities, with 3-4 more associated firms also being under the scanner.
The fresh revelations came days after the market regulator barred the US-based high-frequency trading firm from Dalal Street, accusing the company of taking large derivative positions to manipulate indices such as Nifty Bank.
The Tuhin Kanta Pande-led market watchdog has seized $567 million (Rs 4,843 crore) of the company's funds. It alleged that the firm had bought large quantities of Nifty Bank constituents in the cash and futures markets to artificially support the index in morning trade, while simultaneously building large short positions in index options. Later in the day, Jane Street reversed the trades to profit from options positions, SEBI mentioned in its 105-page order against the US-based group.
On Monday, Pandey said there may be more such cases. He expressed SEBI's intent to enhance its surveillance over attempts to manipulate derivatives trading.
Was abnormal F&O data screaming manipulation during Buch's term and no SEBI action materialised?
The sources pointed outseveral instances of violent expiry-related moves in the country's derivatives market in 2024 under SEBI chief Madhabi Buch's tenure.
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"In each case, the implied volatility of more than three sigma (3σ), causing the index to move by as much as two per cent. This indicates no investment move but a planned manipulation," the sources told Zee Business.
Implied volatility--often referred to as IV--is a key indicator in the futures and options (F&O) segment, with any spike typically suggesting the expectation of larger price action. In statistics, sigma represents standard deviation, which is a measure of variation or spread.
The sources also pointed out "several instances where IV was deliberately suppressed to keep the market in a range", with the settlement "intentionally kept within 0.10 to 1.1 points of the strike price".
Here are some examples of such abnormal spikes in the market in 2024, according to sources:
November 28, 2024: IV in Nifty jumped from 14.3% to 27.7%, with a 400-point fall
December 5, 2024: IV in Nifty rose from 22% to 37.7%, with a 490-point rally
December 13, 2024: IV in Sensex jumped from 9.5% to 27.8%, with a 1,900-point surge
November 22, 2024: IV in Sensex moved from 16% to 30%, with a 1,700-point swing
December 30, 2024: IV in Midselect jumped from 11.5% to 32.5%, with a 300-point surge
January 2, 2025: IV in Nifty rose from 12% to 26%, with a 470-point rally
Quiet expiry date examples:
October 24, 2024: IV: 15% to 4%, Range: 34 pts, Closing: 0.6 pts away
November 21, 2024: IV: 14% to 4%, Range: 42 pts, Closing: 0.1 pts away
June 13, 2024: IV: 16.5% to 7%, Range: 50 pts, Closing: 1.1 pts away
December 17, 2024: On a Tuesday, IV jumped from 11% to 19%, with a 350-point move
NSE flagged big spikes to SEBI, but no action
NSE was learned to have flagged the spikes since January 2024, however, there was no prompt action from SEBI in this regard, said sources.
The sources said there were spikes before 2024 as well, but they were not as big. Also, these spikes were shown as a procedure.
The data suggests that the manipulation wasn’t limited to expiry days. On Tuesday, December 17, 2024, for instance, a non-expiry day, the Nifty50 saw a sharp 350-point move with the implied volatility soaring from 11 per cent to 19 per cent.
SEBI itself termed this as the "first mid-week manipulation case". It was the first time under her leadership that the market regulator showed signs of noticing the problem.
Buch, the sources said, didn't heed the red flags because she had invested via the FPI structure in Singapore and was busy reaping the benefits.
Major manipulation cases surfaced during Madhabi Puri Buch’s tenure
During Buch's term as SEBI chairperson, several cases linked to suspected market manipulation surfaced. Several instances where the same patterns were followed, like pre-positioned in options, followed by index moves, were seen. However, the regulator didn't take any action.
"However, SEBI didn’t take any strict action... It had the charts, the evidence, the pattern: but no response," said the sources.
The sources said that under Buch's watch, SEBI remained a silent spectator to blatant market manipulation.