SEBI’s Crackdown on Jane Street Triggers Derivative Volume Slump, But Deeper Forces at Play

India’s derivatives market has witnessed a sharp 20% drop in volumes, but experts say the Securities and Exchange Board of India’s (SEBI) interim ban on Jane Street is only part of the story. A combination of regulatory changes, cautious trading sentiment, and reduced high-frequency activity is reshaping the F&O landscape.

 

Key Factors Behind the Decline:

 

SEBI’s Ban on Jane Street

 

On July 4, SEBI barred Jane Street from trading in Indian markets, citing manipulative strategies like intraday index distortion and expiry-day price engineering.

 

The firm allegedly earned unlawful gains of ₹4,843 crore, prompting a regulatory clampdown that disrupted liquidity and narrowed bid-ask spreads.

 

Trader Sentiment and Market Caution

 

Many traders adopted a wait-and-watch approach, wary of attracting regulatory scrutiny.

 

High-frequency traders and arbitrageurs scaled back aggressive positions, leading to muted activity in Nifty and Bank Nifty contracts.

 

New F&O Rules Effective July 1

 

SEBI introduced tighter position limits and revised open interest caps for FPIs and index options.

 

Weekly expiry days were altered, and stock-specific exposure thresholds were recalibrated to align derivatives with cash market dynamics.

 

Market Impact:

 

Derivatives turnover hit multi-month lows, with weekly expiry volumes down nearly 45% compared to historical averages.

 

Liquidity providers exited key strikes, increasing trading costs and reducing efficiency for institutional players.

 

Outlook: While the short-term disruption is evident, analysts expect normalization as new players adapt and regulatory clarity improves. The long-term health of India’s derivatives market hinges on balancing oversight with innovation.

 

Sources: Financial Express, Moneycontrol, Business Today