The market experienced pressure on brokerage and Market Infrastructure Institutions (MII) company shares on Friday, following SEBI's action against the prominent US proprietary trading firm, Jane Street. This development raised concerns among investors that the ban on Jane Street, a major player in the Futures and Options (F&O) segment, could lead to a further decline in trading volume.
The Indian stock market witnessed significant turbulence on Friday as market regulator SEBI took stringent action against the US proprietary trading firm, Jane Street. This move directly impacted the shares of Market Infrastructure Institutions (MII) and brokerage companies. Shares of companies like BSE, CDSL, Nuvama Wealth, Angel One, and Motilal Oswal experienced a decline.
Significant Drop in BSE and CDSL Shares
Pressure mounted on two major companies in the MII category as soon as the market opened. BSE shares fell by 6.5 percent to close at ₹2,639. Similarly, CDSL shares also dropped by nearly 2.5 percent, closing at ₹1,763. The primary reason for this decline was the concern that trading volume in the Futures and Options (F&O) segment could further decrease following the ban on Jane Street.
Impact on Brokerage Company Shares as well
Not only infrastructure companies, but brokerage firms' shares were also affected by this action. Nuvama Wealth, Jane Street's local trading partner, saw its shares fall by approximately 11 percent. Additionally, shares of companies like Angel One, Motilal Oswal Financial Services, and 5paisa.com also experienced a decline ranging from 1 to 6 percent.
Jane Street's Significant Volume Share
The biggest reason for the turmoil and concern in the trading community is Jane Street's stake in the F&O market. Zerodha's founder, Nithin Kamath, stated on his social media that approximately 50 percent of the total option trading volume comes from prop trading firms like Jane Street.
Kamath stated that if Jane Street's trading is halted, retail investors, who contribute up to 35 percent of the volume, could also be affected. Therefore, this situation is a cause for concern for both exchanges and brokerage companies.
F&O Volume Already Showing a Decline
Data indicates that the volume in the Futures and Options segment has already fallen from its peak. In September, the average daily volume was ₹537 lakh crore, which has now decreased to ₹346 lakh crore. This represents a decline of approximately 35 percent already.
The F&O segment is already under pressure due to SEBI's strict measures and steps to prevent manipulation, and this decline could deepen further with the action against a major player like Jane Street.
SEBI's Major Decision and Directives
SEBI has banned Jane Street from the Indian markets. Along with this, it has also ordered the seizure of alleged illegal profits amounting to ₹4,843.5 crore. Stock exchanges have been directed to monitor the activities of the Jane Street group to ensure that it does not engage in any kind of manipulation again.
SEBI has also clarified that Jane Street will be given three months to exit all its open positions.
Company Under SEBI's Watch Since February
Interestingly, SEBI had instructed the NSE in February of this year to send a warning notice to Jane Street. In this notice, the firm was advised to stay away from certain specific trading patterns and not to take large positions. Following this, Jane Street also halted trading for some time.
However, sources say that no significant decline in volume was observed during that period. This also indicated that the market is not entirely dependent on a single player.
Further Fluctuations Possible in the Market
SEBI's action has further increased volatility in the market. It is clear that if the F&O volume declines further, it will affect the earnings of brokerage companies, the income of exchanges, and the activities of investors.
Market participants are now keeping an eye on how the volume and investor activity change in the coming weeks. Especially at a time when retail investors are already showing less activity, and the regulatory strictness continues.
