Sebi or Industry failure
Or policy failure with market failure.
The Jane Street casino memory will linger for a while. The reality is that pretty much everyone in the industry knew that two players (not one) – citadel and Jane Street had gamed the system. But what no one is talking about is that they were not acting alone. There were eight players – all very large and supposedly still very credible – acting in collusion. Otherwise they would have placed bets against Jane Street.
This so called high frequency trading is just another form of insider trading. Just that the promoters are not involved. Other market intermediaries are involved.
Jane Street and Citadel are not a case of regulatory failure. They are a case of market failure. If someone wrongly lays a horse, the smart one backs it. The ones who could were in collusion.
However this is where public policy comes in. Indian laws don’t allow an investor to short. Any market person will tell you at least ten stocks which have a valuation that is at least 10x or more of what it should be.
Now let us say a stock W is valued at rs 100,000 cr whereas the fair value is rs 5,000 cr (so 20x). I should be allowed to short it. But the regulations don’t let you do so.
And therein lies the core problem.
