Jane Street barred from Indian markets as regulator freezes $566M

According to Indian regulators, every trading day Jane Street would:

1) buy large volumes of stocks and/or stock futures that are part of an index tracking India’s banking sector, early in the day,

2) subsequently place large options trades, betting that the index would decline or volatility would spike later in the day, and

3) later in the day, cash out of the large long positions, dragging the index lower, making far more money on the options trades than on the long positions.

Jane Street can and likely will claim the firm was only arbitraging away pricing inefficiencies, nothing more, nothing less. It was just business as usual, etc., etc.

However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.

So why can’t other players detect this behavior and trade with JS, removing their edge?

Most exchanges do not reveal counter-party information smaller than the broker level. So you wouldn't know just from looking at market activity the same person causing the large futures move was also taking large options positions.

Doesn't matter - see a pattern, exploit it - and in doing so, make profit yourself whilst reducing the pattern.