How Jane Street Used Controversial Expiry-Day Strategy Marking The Close To Extract Massive Gains
New Delhi: The biggest surveillance failure in the history of SEBI, the Jane Street scandal has shaken the regulatory framework of the Indian stock market. After this scandal, stock exchanges are engaging in preparing a ‘Maha-Surveillance’ system to prevent any such scam in the future.
According to sources, the stock exchanges are preparing to make a major and revolutionary change in their monitoring system. This new system is set to implement Artificial Intelligence (AI), which will be able to catch not only big but also small and suspicious trades.
Exchanges to keep ‘hawk’s eye’ on trades
Sources told that a new framework is being developed to prevent ‘pre-planned manipulations’ like Jane Street. The new system will work at multiple levels.
‘Upgrade 2.0’ of AI surveillance
According to sources, the biggest focus of strengthening surveillance is on making AI smarter.
Analysis of large data volumes
Crores of trades happen every day in the Indian markets.
The existing AI was probably not able to analyse huge data effectively.
Now AI is being upgraded in such a way that it can instantly catch even the smallest suspicious pattern hidden in the large data volume.
Last minutes of expiry will become a ‘kill zone’
The entire game of Jane Street used to happen on the expiry day, especially in the last 30 minutes. Now this time will be the most guarded.
Last minute micro-monitoring
Sources said that on the expiry day, especially in the last 15-30 minutes of trading, monitoring will be intensified manifold. A real time alert system will work on every big trade.
‘Small trades’ are now also on the radar of manipulation
Until now, it was believed that only big trades could move the market.
But Jane Street showed how the index can be manipulated by a series of small but effective trades.
According to sources, now even small but coordinated trades made in the same direction can be considered manipulative.
If the same strike price is being targeted from many different accounts, the AI
There will be a change in the ALGO surveillance system
Algorithmic trading (Algo Trading) was used on a large scale for manipulation.
Now preparations are being made to crack down on this.
Forensic investigation of ALGO will be started, as per sources.
In the new system, forensic investigation of all trades done by any suspicious algo will be done so that its pattern can be understood.
Double-check the data
Sources have also indicated that not just the future, but the past can also be investigated.
Old expiry data can be re-analysed.
It is possible that all suspicious expiry data of the last few years will be re-examined with a new AI model, so that it can be known which other firms apart from Jane Street were involved in this ‘game’.
What was Jane Street scandal?
Jane Street, an American high-frequency trading firm, is accused of systematically manipulating Indian indices during the tenure of former SEBI chairperson Madhabi Puri Buch.
The firm would make heavy purchases in the morning on the expiry day to push the index up and suddenly sell it in the evening to bring it down.
The initial estimate is Rs 4,843 crores, but sources believe that this figure could go up to Rs 1 lakh crore.
The shocking thing was that NSE had started warning SEBI about these activities from January 2024 itself, but the then leadership did not pay any heed to these warnings.
What sources told Zee Business
After the Jane Street case, exchanges will strengthen surveillance
Preparations are on to strengthen surveillance with AI
Focus is on improving AI for large data volumes
Surveillance will be intensified on the expiry day, especially in last-minute trades
Small but effective trades can now also be considered manipulative
Trades targeting similar strikes will be under special surveillance
Changes may occur in the ALGO surveillance system
Re-examination of old expiry data is also possible
(This Article was original produced in Zee Business)
