A lawsuit in Manhattan may spur foreign investments in the Indian options market. Jane Street Group has sued two former employees and a hedge fund group over alleged theft of a proprietary trading strategy that involved investing in the Indian options market.
The New York-based trading firm has charged former employees Douglas Schadewald and Daniel Spottiswood of stealing the trading strategy they were involved in developing it. The suit claims they are now using it at the Millennium Management, which they joined earlier this year.
Jane Street said its profits using the strategy have halved in March, which could only happen when a competitor enters the market using the same strategy. Millennium has argued that Schadewald and Spottiswood were not using the strategy, but basic option trading strategies long discussed in textbooks and articles.
The strategy in question helped Jane Street rake in $1 billion last year, Bloomberg reported. It was not clear whether this revenue was generated entirely from India or equity options trade. As per data from the National Stock Exchange, foreign investors made up 8% of India's equity options market in the first 11 months of financial year 2024, with the market share at Rs 23.4 lakh crore.
The average daily turnover (options premium) in the equity options segment rose 4.7% month-on-month to a fresh monthly high of Rs 79,889 crore in February, according to the NSE. This translated into average daily turnover of Rs 61,424 crore in the first 11 months of fiscal 2024, a jump of 29% over the same period in fiscal 2023.
Trading in derivatives by February saw a modest rise of 50 basis points in futures and 30 basis points in index options. The number of active investors stood at 48 lakh in derivatives in February. The extreme skew in the markets continued as well, with over 90% of investors trading below 10 lakh in the month, contributing to 3% of the turnover, the NSE data showed.
For the options market, 75% of investors contributed to 2% of the turnover in the month. Individuals constituted 35% of the equity options market. Half of the market is dominated by proprietary traders, who trade on their own money. Rest includes corporates, domestic institutional investors and others.
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