The Jane Street Trap

THE TAKE 

Derivatives Trap: Indian Retail Investors Are At The Mercy Of Techno-Giants

Indian markets regulator Securities & Exchange Board of India (SEBI) passing an order barring Jane Street Capital, a New York-based trader, shouldn’t come as a surprise to anyone.

A study released by the regulator in September 2024 showed that India’s trigger-happy retail traders lost around Rs 1,81,000 crore or $22 billion in futures options between 2021 and 2024. Moreover, only 7.2% of the retail traders made a profit in the derivatives segment.

In 2023-24, some 91% of retail traders made losses while trading in derivatives adding up to around Rs 52,000 crore.

The Glaring Divide

Most of the profits were generated by larger entities that used trading algorithms, with 97% of foreign investors' profits and 96% of proprietary traders' profits coming from algorithmic trading, SEBI said.

The proportion of retail traders below 30 years of age rose to 43% in fiscal year 2024, and most individual traders belonged to low-income groups, earning less than Rs 5,00,000 annually, SEBI said.

Not surprisingly, India is the world's largest derivatives market, accounting for nearly 60% of global equity derivative trading volumes of 7.3 billion trades in April, a Reuters report quoting the Futures Industry Association said.

And yet the people behaved as if Jane Street dropped out of the sky.

But Jane Street only painfully highlights the stark gap between the knows and know-nots.

Worse, Jane Street exposes the cruel role that technology plays in depriving the least smart and savvy of their savings and transferring them to the rich and techno-literate.

Jane Street’s description of itself should tell you why.

It says it hires researchers and traders whose ideas and algorithms are informed by a deep mathematical fluency, and technologists who understand their systems from the hardware on up.

Moreover, Jane Street says or perhaps boasts that it builds low latency networks, hack compilers and designs distributed systems. And wraps up by saying that deep learning is the future of quantitative trading.

Lamb Vs Wolves

On the other side, a recent viral video showed an Uber driver claiming to have lost Rs 2.5 lakh in options trading last year.

He also added helpfully that he did not lose any money in stocks. Instead all of it was lost in options trading. Which he also said he would get back into. The only difference, he would do so when he had enough capital.

His annual income: around Rs 2.5 lakh.

The Uber driver, whose video I saw, seemed to take it all in his stride and seemed to be sharing a life experience rather than pouring out his woes.

Good for him. But it is not just Jane Street’s hyper-smart quant Wall Street traders he is ranged against.

There is another layer, right at home.

These are the smart techies sitting in glass and steel complexes in Bengaluru behind slick stockbroking apps, constantly smoothening out chinks in user experience so an options trader, whether sitting in a car, train or just walking can do deals on the go.

Meanwhile, their marketing colleagues create attractive “how to invest” videos and social content that lures mostly first time traders into trading apps all year round and click by click.

Together the apps herd unsuspecting traders like the Uber driver into an arena where quite literally the wolves of Wall Street like Jane Street Capital are waiting.

The Uber driver, or the millions like him or the 91%, never stood a chance.

The game was always in favour of the Jane Street’s, whose existence hopefully the Uber driver will now learn about and understand his limits.

What Are The Guardrails?

The Take has argued in the past for more friction in trading.

While the regulators have responded with several moves to reduce trading speculation and to tighten the flow of unsecured loans that could fund it, the steps have clearly not been enough.

Regulators also tend to focus on overall systemic stability, which isn’t significantly affected by retail investors losing their shirts, because the amounts involved are still relatively small.

The social impact of course is something else.

The Uber driver has a phone hooked to the dashboard.

The phone connects him with passengers on an app. A swipe presumably takes him to the trading screen of a broking app.

This is a story that plays out one way or the other across more than 800 million smartphones in India.

Some gamble on IPL scores. Others gamble with options trading.

The common factor is access and the lack of awareness of what lies on the other side.

The slicker the app, the faster the wealth destruction.

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CORE NUMBER

Rs 70,325.5 crore

That’s the combined erosion from the six most valued Indian firms last week, led by HDFC Bank and ICICI Bank, the Business Standard reported.

📌 The details:

Reliance Industries was the only gainer, adding ₹25,877.48 crore to its market value.

Among the losers:

HDFC Bank lost Rs 27,384.72 crore

ICICI Bank shed Rs 13,421.36 crore

Infosys down Rs 12,782.08 crore

TCS, Bharti Airtel, and LIC also saw declines in valuation.

🧾 Why it matters:

Heavyweight financials dragging down market sentiment points to broader concerns, possibly around interest rates or global cues.

💬 According to experts, investors are closely eyeing earnings and macro signals, especially with global rate cycle uncertainty in play.

Tariff Tango. Minister of Commerce and Industry Piyush Goyal reiterated on Sunday that any trade deal with the US has to be reciprocal and balanced, reported Moneycontrol.com. Goyal's comments come as we're days away from Trump's reciprocal tariffs of July 9.

The Backdrop: For weeks, government sources have been quoted by reports saying that the two countries are close to striking a deal. In that context, Goyal said in an event in Jammu and Kashmir, "Traders need not worry. Whatever FTA we sign will keep the interests of Jammu & Kashmir and the entire country in mind."

Sticking Points: Agriculture and the auto sector are reportedly issues that still need ironing out.

Sole Patrol. German footwear brand Birkenstock is taking legal action against copies in India, reported Reuters. After the brand filed an infringement lawsuit in the Delhi High Court against four footwear traders, four factories and two unnamed individuals in May, court-appointed representatives inspected some factories recently.

By The Numbers: The popularity of Birkenstocks in India is reflected in its growth numbers — since its launch in 2019, it has doubled revenue each year, only to slow down to 46% in FY24.

What Next? The factories probed were in Delhi and Uttar Pradesh's Agra, and reports of the visits have been submitted to the court. The next hearing is scheduled for October 6, the report said.

Musk's New Party. Elon Musk, US President Trump’s ex-best friend and the world’s richest man, announced on X that he’s creating a new political party called‘The American Party.’ Musk’s party will be fiscally conservative, according to a CNN article, and will participate actively in next year’s midterm elections, per Musk. 

Flashpoint: Trump and Musk’s feud began when he publicly criticised the Trump administration’s ‘One Big Beautiful Bill,’ saying it would add trillions of dollars to the US government’s debt. 

Overview: Though many have criticised the US’s effective two-party system, no one has been able to successfully start a third party. Experts say it’s financially and legally challenging to create a third party and that voters are hesitant to join it too. 

Climate Crunch. India will need to invest $75 billion to help small-scale farmers adapt to climate change, according to Alvaro Lario, president of the International Fund for Agricultural Development (IFAD).

Backdrop: India’s small-scale farmers – who account for 86.2% of farmers and own 47.2% of farming land – face seasonal water scarcity, rising temperatures, and more frequent droughts. To address these challenges, IFAD recommends crop diversification, improved water management and micro-irrigation systems, as well as creating community seed banks, using soil health cards and drought-tolerant seeds. 

Next Steps: All this requires money, and Lario said in an interview with PTI that IFAD is looking into getting private local companies to partner with the government. They’re also issuing bonds that pension funds and central banks all over the world can buy.

THE SIGNAL DAILY

Rethinking College in India: Liberal Arts, Placements, and Return On Investment

In the past two decades, there’s been a wave of liberal arts universities in the country  – these challenge the traditional Indian model that sequesters students into strict streams. 

FLAME set up shop in 2007, then Azim Premji, Shiv Nadar, and Ashoka University in 2014. This year, Nayanta University of Pune will take its first batch of students. 

Liberal arts universities encourage students to take classes in lots of different departments. They also generally have smaller class sizes and focus on the Socratic, discussion model of learning. 

Liberal arts universities have been around for quite some time now, but what do they offer that’s so different from traditional Indian colleges? What are the career prospects of their graduates, and have they changed in the recent past? They’re also quite expensive, in the tune of 30-40 lakhs for a three-year Bachelor’s course, for instance; are they worth it? 

Tune in to the latest episode of The Signal Daily to find out more. The Core produces The Signal Daily. We don’t do hot takes, instead we bring you deep dives into the how and why of consumer trends.

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas