5.11 Case studies

Case 1: SEBI's FY23 intraday study, read through the cost model#

Context SEBI studied individual intraday traders in the equity cash segment for FY19, FY22 and FY23 (PR 13/2024, 24 Jul 2024; figures as reproduced by Taxguru and Business Standard).

Numbers Individual intraday traders rose from 14.9 lakh in FY19 to 68.9 lakh in FY23; traders under 30 rose from 18% to 48%. In FY23, 71% made net losses. Loss-makers averaged 72 trades a year, an average trading loss of ₹3,415 before costs, and average costs of ₹1,956, for a net loss of ₹5,371. Profit-makers averaged 51 trades, a trading profit of ₹7,435 and costs of ₹1,446 (19% of their trading profit). Traders with more than 500 trades a year: 80% lost money; their loss-makers averaged a net loss of ₹61,394, and costs added 72% to their trading losses.

Analysis

• Cost per trade. Loss-makers paid $\text{₹}1{,}956/72 = \text{₹}27$ per trade; profit-makers $\text{₹}1{,}446/51 = \text{₹}28$. If a "trade" is a round trip at a 0.03%-or-₹20 broker, M01 Problem 1.6 shows that tickets below ₹66,667 cost about 10.6 bp to round-trip, which suggests a typical ticket of the order of ₹25,000. (This is an inference from averages; brokers' fee schedules differ.)
• Gross loss before costs. Loss-makers lost $\text{₹}3{,}415/72 = \text{₹}47$ per trade before costs, about 19 bp on a ₹25,000 ticket. This is a gross loss, not a failure to clear costs: the average loss-maker's trades had negative expectancy before any charge. That is the signature of adverse selection and poor timing (5.3, 5.10), not only of costs.
• Frequency. The 80% loss rate among the most active traders and the 72% cost-to-loss ratio match Proposition 5.7: the Sharpe drag grows like $\sqrt N$, and the annual cost like $N$.

Case 2: A published intraday edge meets Indian costs#

Context Gao et al. (2018) is a peer-reviewed, widely replicated intraday result with an $R^2$ of 1.6% (5.8). Suppose a trader wants to apply it to Nifty futures.

Analysis By Proposition 5.6, a sign strategy earns $\rho\sigma_y\sqrt{2/\pi}$ per day. With $\rho = 0.126$:

$\sigma_y$ (last half hour)	Gross edge per day
0.15%	1.5 bp
0.25%	2.5 bp
0.40%	4.0 bp

Statutory round-trip charges on one Nifty futures lot are 5.95 bp from 1 Apr 2026 (2.95 bp before; M01 Problem 1.8), before the spread. Even on volatile days the gross edge is below the charges. With the pre-April-2026 STT, the strategy would have been marginal on high-volatility days only. Before even looking at Indian data, the calculation rules out the naive version. A trader who still wants to pursue it must find a conditional version with a much larger $\rho$ (for example, restricted to news days), and then must correct for the search (M04).

Case 3: Expiry-day index moves and SEBI's 2025 order against Jane Street#

Context Index options settle on the index level at expiry. If a large trader can move the index near expiry with cash or futures trades, and holds options whose value depends on that level, the cost of moving the index can be smaller than the gain on the options. This is a strategic use of price impact.

Timeline The dated timeline, taken from SEBI's interim order and press releases, and the points where secondary sources conflict are in M08 · 8.12 Case B. In brief:

• 3 Jul 2025: an ex parte interim order of SEBI alleged, prima facie, that Jane Street entities manipulated the Bank Nifty index on expiry days and barred them from the market. On 17 Jan 2024, the order's most-examined day, the group net bought ₹4,370.03 crore of Bank Nifty constituents in cash and stock futures between 09:15 and 11:47, lifting the index, while building a short option delta 7.3 times as large; it then sold the constituents, pushing the index down (order, paras 15.3–15.27).
• Jane Street denied wrongdoing and described the activity as index arbitrage. It credited ₹4,843,57,70,168 (about ₹4,843.6 crore) to an escrow account (SEBI PR 40/2025, 14 Jul 2025), after which most of the interim directions ceased to apply, subject to a cease-and-desist direction and exchange monitoring (SEBI PR 45/2025, 21 Jul 2025).
• Jane Street appealed to the Securities Appellate Tribunal in Sep 2025. On 21 Oct 2026 SAT reserved its order on Jane Street's plea for SEBI's investigation documents. As of 6 Nov 2026 no ruling on the merits and no final SEBI order had been reported; these remain allegations.

Mechanism In Kyle's terms (5.4), a trader with a large option position has a payoff that depends on the price their own order flow creates. If cash-market impact is $\lambda Q$ for a buy of $Q$ and the option position's delta exposure to the index is $\Delta_{\text{opt}}$, then pushing the index costs roughly the impact paid on the cash trades, $\tfrac12\lambda Q^2$ for a linear-impact execution, while the option book gains roughly $\Delta_{\text{opt}}\cdot\lambda Q$. When the option book is large relative to the cash trade, the second term dominates. Market design counters this by making the settlement price expensive to move: a VWAP over 30 minutes (5.6) or a closing auction (M01 · 1.3), plus position limits measured intraday (M01 · 1.11 Case 2).