INSUBCONTINENT EXCLUSIVE:
Sebi's explosive crackdown on American hedge fund Jane Street has sent tremors through India's Rs 6.2 lakh crore capital market
infrastructure, with the regulatory action targeting alleged market manipulation worth Rs 36,500 crore in profits threatening to reshape
Dalal Street's derivatives landscape.The Nifty Capital Market index, comprising 15 stocks with a combined market capitalization of Rs 6.2
lakh crore, traded flat on Monday after Friday's selloff as investors grappled with the implications of Sebi's interim order barring Jane
Street from India's securities market.Capital market infra-related stocks have been giving multibagger returns on the back of surge in
retail as well as institutional participation in India's growth story
In the last 3 years, BSE shares are up over 1,100%, while others like MCX India, Anand Rathi Wealth, Motilal Oswal, 360 One WAM, CDSL and
others have also been multibaggers.Jefferies said as Jane Street "participated in the cash & derivatives markets as an FPI as well as a
member, hence, its contribution in market volumes would be included in FPI as well as prop categories." The brokerage estimates that Jane
Street's contribution to BSE would be around 1% of the exchange's business.According to Jefferies' analysis of exchange data, "FPIs form
3-8% of equity derivatives turnover and prop traders form 60-65% of total; rest by individuals & others," highlighting the critical
dependence of India's derivatives market on proprietary trading firms.
Live EventsThe global brokerage noted that Jane Street can "contest
the claim or settle it and continue participation in the market," while observing that "given that the inquiry was already underway, we
understand its activity levels have declined over the past few months."Also Read | Jane Street aftermath: 4 stocks suffer Rs 12,000 crore
wipeout in collateral damageJefferies' detailed impact assessment shows stark differences across market participants
"For BSE, derivatives drive ~58% of FY26E revenues
In this segment, FPIs drive ~3-4% of turnover, and we estimate that contribution from JS would be a smaller subset of that (~1% as per JEFe)
Hence, we see a limited impact of JS on BSE's earnings," the brokerage stated.However, Nuvama faces significantly higher exposure
"In the case of Nuvama, asset services form ~26% and IB & IE form ~20% of our FY26E revenues, while contribution to profits is higher given
We understand that JS could be an important client for Nuvama and assuming ~15-20% of asset services and IE revenues come from it, we expect
an impact of ~5-6% on overall revenues and ~7-8% on earnings," Jefferies warned.Jefferies' conversations with market participants reveal
mixed signals about the fallout
"Prop traders/ HFTs see a manageable impact from JS' exit as the fall in its turnover may be made-up by props/ HFTs as manipulative factors
potentially reduce," the brokerage noted, adding that "there should not be a counterparty risk on JS' contracts as trades are covered by the
clearing corporations and JS has 3 months to unwind open positions."The brokerage emphasized that "the key unknown is whether this instance
can lead to a knock-on impact on trading vols, and we feel that trends over the next week on derivatives volumes will be key to watch,
especially the index derivatives expiries on Tuesday & Thursday."Also Read | Explained: What is Jane Street and how it made Rs 36,500 crore
profit by gaming Dalal StreetInterestingly, Jefferies observed that "index options premium turnover was a tad higher week-on-week (Wow) for
last Friday) and a tad lower than 2-month averages," suggesting immediate market resilience despite the regulatory shock.Industry voices
echo concerns"Prop trading firms like Jane Street account for nearly 50% of options trading volumes
So this could be bad news for both exchanges and brokers," warned Nithin Kamath, CEO of Zerodha.Dinesh Thakkar, Managing Director, Chairman
and Founder of Angel One, emphasized the structural nature of India's market growth: "Retail participation in equity derivatives has surged
from just 2% in 2018 to over 40% in 2025
India's market opportunity is structural, not cyclical and certainly not dependent on any one firm.""Jane Street is one of the largest
traders contributing to Indian markets," explained Siddarth Bhamre, head of institutional research at Asit C Mehta
"When big players are banned for wrongdoing, others become cautious and reduce activity, leading to lower volumes."Regulatory
VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, observed: "The regulatory action on Jane Street and its
implications will be closely watched by the market
The volume of derivative trading is likely to take a hit impacting stock exchanges and some brokerages."Ashish Nanda, President & Chief
Digital Business Officer at Kotak Securities, outlined broader implications: "HFT's will surely be feeling the heat
Many will be re-assessing their strategies
The fact is that HFT firms provide a lot of liquidity in the markets
If there is reduction in activity by HFT's, it will also impact retail volumes."Veteran market expert Ajay Srivastava struck a defiant tone:
"Let us be honest, every market in the world, including the US market, had these problems of being the bad guys..
Just catch the guy, penalise him, show him this thing, who the brokerages who are part of it penalise them heavily, does not matter
Make them an example that no one dares do it again."As Jefferies noted, "What is unclear & how to judge impact," with the next derivatives
expiry cycles on Tuesday and Thursday set to reveal whether India's Rs 6 lakh crore capital market infrastructure can absorb the shock or if
Jane Street's exit marks the beginning of a broader algorithmic trading exodus from Dalal Street.(Disclaimer: Recommendations, suggestions,
views and opinions given by the experts are their own
These do not represent the views of TheIndianSubcontinent)
