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This is huge! SEBI finally had the balls to take some action. Hope these ▮▮▮ JS quant traders end up rotting up in jail for their evidently market manipulative practices. Order seems super technical looks like a good weekend read
1. JS builds a long position (via buying in cash/futures market). Now because JS buys so much in big size and within a matter of 20-30 minutes, this pumps up indices (banknifty/nifty).
2. While they're building their long positions, the prices of 'index options' to build a short position becomes dirt cheap since it's an options expiry day (if you don't understand what an expiry is and what options are then go read up on that first else you won't understand anything in the order). SEBI claims that while JS had a long position worth ₹X, JS also built a short position which would be worth 7X. In simple words I am placing 'one' bet that a stock would go from ₹100 to ₹101, but at the same time I am also placing 'seven' bets that it would go from ₹100 to ₹99.
3. JS buys the dirt cheap options and ends up building a short position worth 7X it's long position. Now because JS is building its short positions via options that are expiring on that day itself, the cost for building such a short position is very less compared to any non expiry day.
4. JS unwinds (i.e., dumps) its large AF long positions, again within 20-30 mins, and causes the indices to fall. This fall leads to their dirt cheap options short position becoming extremely profitable because they're 7 times as much short as they were long originally.
I think illustratively, based on what I have understood from the order, this is how the trade went down:
(I) I see on my screen that there are more than 1lac+ orders being placed / have been placed / have been executed etc within the last 20-30 mins for buying stock A. I end up concluding this buying frenzy will continue and so I also join in and end up buying stock A.
(II) On a completely different screen where not a lot of people pay attention, there suddenly are more than 7lac+ orders to sell stock A. On the other hand the original 1lac+ orders through which stock A was bought initially are now also being reversed (i.e., the original buyer is also selling exiting/selling).
(III) I see the price of stock A is now down AF compared to the price from where I entered and I (along with a lot of others) panic and rush to get out by selling it asap.
(IV) The person with 7lac+ sell orders ends up winning big in this selling frenzy.
The above was a very dumbed down explanation and you will not understand it completely unless you first understand how derivatives work in Indian markets.
Now the market for the underlying is relatively less liquid and therefore it is easy to move/influence its price, if you have big money. At the same time you are also building a bigger bet in the opposite direction in the options market which is a much more liquid market than the market for the underlying itself. So once you unwind your move in the underlying, you end up moving/influencing the price underlying again, and this time in favour you bigger sized options bet.