Jane Street effect: Turnover on expiry day hits four-month low

Options trading in India experienced a significant fall, reaching its lowest point in four months, following a trading ban on Jane Street Group. This occurred on the first major expiry day today since the ban. The total derivatives premiums exchanged were nearly 40% lower than the year's average for such days, according to data from the National Stock Exchange of India Ltd. The day, which saw a relatively smooth trading session, was pivotal as investors awaited the impact of the Securities and Exchange Board of India (SEBI) order released on the previous Friday.

About half of the nation's equity-derivatives expire on Thursdays, a day central to Jane Street's strategy, which SEBI accused of market manipulation. Jane Street has denied these allegations, asserting their trades were standard arbitrage practices.

The benchmark NSE Nifty 50 Index began the day with little change, with major components such as HDFC Bank Ltd., Reliance Industries Ltd., and ICICI Bank Ltd. showing negligible movement. By the close, the index was down by 0.5%, and the India NSE Volatility Index reached its lowest level since April 2024.

Nifty 50 options trading marked the lowest activity for an expiration day since May 29, though it matched the average volume for this year's expiry, as per Bloomberg data. The subdued trading activity reflects the cautious stance adopted by market participants in the light of recent regulatory developments.

Analysts attributed SEBI's "strong vigilance" as a factor contributing to cautious behaviour among investors.

Tejas Shah, head of equity derivatives at Equirus Securities, noted, "No players would want to enter their bad books."

Additionally, Nimish Maheshwari of Beat The Street had anticipated a 20% to 30% decrease in options volume on weekly contracts compared to previous expiries, as major trading firms refrained from employing strategies analogous to those of Jane Street. This conservative approach is seen as a direct response to SEBI's intensified scrutiny of the derivatives market, which has grown exponentially.

On Tuesday, the BSE Sensex index saw its less liquid options expire, maintaining volumes consistent with previous expirations. However, the costs of contracts traded on the BSE Ltd. exchange fell 4% below the prior expiration, and 28% lower than the eight-week average excluding month-end Tuesdays, according to Ambit Capital.

SEBI has been intensifying its crackdown on derivatives trading after a 40-fold surge elevated India to the top position in the global market for such contracts, leading to significant losses for retail investors. The regulator's actions aim to protect these investors as the market continues to evolve rapidly.