I’ve been watching the markets for years— managing wealth, building portfolios, witnessing booms, crashes, scams, reform cycles, and regulatory knee-jerks. But nothing baffles me more than the convenient outrage we summon when someone wins “too much” within a system we ourselves designed.

As everyone celebrates SEBI’s order barring Jane Street from trading and clawing back thousands of crores in what it calls unlawful gains, the powers that be might have put a firm nail in the coffin of progress and learning.

Nitin Kamath of Zerodha pointed out how trading volumes have dropped sharply after this. But here’s a different view: Jane Street didn’t damage the market; they just used the rules we made and won big. This exposes how our markets lack depth. Instead of gloating in their momentary misery, we should use this to push for better regulations that build strength, not block smart players.

Grudging Jane Street’s luck, strategy, and its deft execution and exploitation of India’s shallow markets is like watching a cunning fox raid a poorly guarded henhouse, seizing every chance while others scramble, unaware of the fierce spirit of resilience and reform needed to level the playing field.

Remember… – during demonetisation – People died in ATM queues, but they found solace in the idea that someone richer was potentially losing more. That’s the essence of what we witnessed with SEBI vs. Jane Street.

Schadenfreude dressed as patriotism.

Our Markets Can’t Handle Even Small Flows

The mutual fund industry has grown to `₹75 lakh crore in assets as of June 2025, thanks to campaigns like “Mutual Fund Sahi Hai” that pushed 20% of household savings into stocks at absurd, unsustainable valuations.

Our total stock market value is around ₹454 lakh crore. That sounds big, but it’s not deep enough. In the US, founders like Jeff Bezos or Jensen Huang sell billions in Amazon or Nvidia shares, and the prices barely move much. Liquidity is strong there, with lesser counterparty risks. There is NO counterparty existent in India in case of panic.

In India, even a 2% redemption from mutual funds – about ₹1.5 lakh crore – could cause a tectonic fall. Based on daily trading volumes of ₹1-2 lakh crore and how thin our market is, this could push Nifty down by 5-10% in a few days. Bank Nifty, where five banks make up 80%, might fall 10-20%.

Consider this: even a few thousand crores or sometimes just a few hundred crores of trades in the cash market can swing the indices dramatically by 1-2%, exposing the shallow liquidity in underlying stocks. Yet, the real game unfolds in options, where notional turnover towers over cash by 10 times or more, blindsiding gullible, unaware retail players with sudden volatility and massive losses they never see coming.

We’ve seen this before: small outflows in 2020 amplified drops by 10-15%. With so much “rainy-day” money moving to stocks in the last 5-7 years, one small event could start a chain reaction. It’s ironic – we talk about our economy in the global pecking order, but our markets shake from minor shifts. Should they be this fragile? Should a small amount of capital really shake one of the most traded indices in what we claim is one of the most resilient economies?

Rules That Limit Growth, Not Protect It

SEBI wants to safeguard investors, but some rules do the opposite. Circuit filters stop trading at 10%, 15%, or 20% moves, to prevent panic. But they just delay problems and make volatility worse when trading restarts. This happens only in India—why not let prices move freely like in the developed markets? Bans on stocks when open interest rises too much? That’s another odd rule that traps money and scares away big players.

Options trading shows the gap clearly. In evolved markets, anyone can write options or act as a market maker, even for long-term contracts up to 5 years. Liquidity exists for far-out strikes, and even Indian ADRs like Infosys, Wipro, ICICI, and HDFC Bank have more depth in the options market there. I logged into a friend’s account and tried to place an order for Jan ‘26 and Jan ‘27 (in ICICI and HDFC options and it was smooth as hot knife on butter.

In India, I keep calling my broker struggling to place an order (for the same month expiry) and waiting for some big market maker to create an OI of 3 lots and traded volume of 2 – What a joke, really.

There is no counterparty for many-many simple trades in India, and liquidity vanishes beyond the current month. Jane Street made profits legally in this setup – We shouldn’t be fining them. We should be worshipping and thanking them in the Gurupurnima week for giving us the biggest lesson in recent stock market history.

Our system invited them to play and now we are complaining that they scored too much. Dostoevsky rightly said – “The surest way to be happy is to find a fault in someone else”. The true measure of integrity lies in fixing our own flaws before we start indicting others for playing by the very rules we set.

Indian Markets: Over-Regulated and Under-Innovative?

SEBI’s decision to bar Jane Street from trading, for me, sadly reinforces the idea that we’re still a long way from being a truly free market, like the US. It paints a picture of an environment where free thinking and innovation struggle to genuinely thrive. Just look at the S&P 500 – new-age businesses, the real wealth creators, make up about 30% of it. Compare that to our Indian main indices, where a whopping 45% are comprised of financial companies, essentially the oldest form of business: lending and borrowing.

Bank Nifty, where just five banks make up 80% of the index – in my opinion, almost opens the gates for anyone with deep pockets to develop strategies and gain disproportionately by trading these indices and stocks separately.

The Real Issue: Envy Over Reform

Thomas Sowell said, “Envy was once considered to be one of the seven deadly sins before it became one of the most admired virtues under its new name, ‘social justice’. We’re happy about Jane Street’s troubles, but it’s our market that’s hurting – volumes down, less innovation. Remember George Soros and the Bank of England in 1992? It hurt short term but led to growth.

Jane Street could do the same for us: Force Changes.

We shouldn’t treat long-term FDI better than short-term FII money. All capital helps if we let it flow freely. Free markets create some inequality at first, but they build wealth. Over-regulating keeps us stuck with old businesses like banking dominating our indices, not new ones like in the S&P 500 or NASDAQ.

Collaborate with Jane Street and its ilk – Don’t deride them

We should collaborate with Jane Street and find ways to use their intelligence, making them part of our system. After all, they’ve earned billions from us – why not turn that into a partnership for deeper markets?

Top policy makers should get hands-on experience: give them real money to trade options and futures themselves. Let them see the system’s problems, weak points, and lack of depth and breadth firsthand.

They should be allowed, through their organizations, to open brokerage accounts with reasonable capital. Each one should have an account at E*TRADE, Charles Schwab, or Fidelity. They should be asked to spend a few hours on real-time trading, do some actual trades, experience how those markets operate, and feel the ease of doing business. Then, draft policies based on that real-world insight. This would build a robust learning curve, turning regulators into informed players instead of distant rule-makers.

Jane Street’s temporary exit isn’t a win. 10 more will emerge under a different name. – It’s a reminder that we need to evolve.

A moat around mediocrity is the fortress of the fearful, where innovation drowns in the stagnant waters of complacency, shielding the average from any form of greatness.