F&O trading activity drops almost 20% following SEBI’s ban on Jane Street
In early July, the Securities and Exchange Board of India (SEBI) barred Jane Street, a U.S.-based quantitative trading powerhouse, from its markets amid allegations of sophisticated expiry-day index manipulation.
Far from being a niche regulatory footnote, this decision triggered an almost immediate 20 percent plunge in F&O trading volumes, exposing the depth of Jane Street’s imprint and spotlighting the fragility of India’s derivatives infrastructure. What happened next offers a rare case study on how regulators, trading giants, brokers and retail investors are all connected to each other.
What SEBI found and why it matters
SEBI’s interim order, issued on July 3 and covered by multiple sources, alleges that Jane Street and its Indian and Singaporean entities pocketed approximately ₹4,843 crore ($567 million) by orchestrating intra‑day “mirror trades” that skewed Bank Nifty and Nifty‑50 expiry prices.
The firm reportedly built long positions in index futures and selected stocks in the morning, then liquidated these in the afternoon while holding short positions in index options, thus earning steep profits on options while taking smaller losses on the futures side. Even after a February warning, the firm allegedly persisted, prompting SEBI to freeze ₹4,843 crore in an escrow account and bar Jane Street from all Indian markets.
Immediate impact on F&O volumes
The effect was swift. F&O volumes dropped nearly 20 percent in the week following SEBI’s order. In particular, daily average turnover in index options on the NSE fell about 17.4 percent compared to the prior week. Weekly expiry premiums cratered too: premium turnover plunged from ₹80,731 crore on June 26 to ₹61,511 crore on July 3 (the announcement week), then plunged further to ₹45,884 crore by July 10, roughly a 25 percent two‑week slide. This translates to a four‑month low in expiry day turnover, underscoring the outsized role Jane Street and its high‑frequency peers played in shaping liquidity and volatility.
Collateral damage
The tremor rippled beyond F&O – shares of major exchanges and stockbrokers declined sharply after the ban. BSE dropped around 6.4 percent, Angel One nearly 6 percent, and Nuvama Wealth over 10 percent on the day. Industry analysts warn that the exit of algorithmic liquidity providers like Jane Street could make pricing less efficient, widen bid‑ask spreads, and increase costs for all participants.
Jane Street fights back
Jane Street has deposited around $560–567 million into escrow—roughly equal to the disputed gains—and is seeking to lift the ban. The firm continues to assert its trades were legitimate index arbitrage and plans to contest the order, potentially appealing to the Securities Appellate Tribunal. Meanwhile, SEBI’s investigation continues, extending to other indices and exchanges, with a final decision pending.
Conclusion
This episode marks more than a blow to Jane Street—it is a watershed moment for India's derivatives markets. The 20 percent drop in F&O volumes shows how concentrated liquidity really is, and how intertwined global quant players are with retail and institutional flows. For exchanges and brokers, it underscores vulnerability in their business models, which hinge on algorithm-driven turnover.
For regulators, it’s a statement of intent: India won’t tolerate market couture dressed up as market manipulation. And for investors, mainly retail, the wake-up call is clear: markets are becoming more tightly regulated, trading costs may rise, and the tides of volatility could reset.
FAQs
Why did F&O trading volumes drop by 20 percent?
The drop followed SEBI’s interim ban on Jane Street, which was a major liquidity provider in index options. Its abrupt shutdown removed large portions of algorithmic trading, which had propped up volume and compressed spreads during expiry days.
Did retail investors benefit from this drop in activity?
Not necessarily. While reduced manipulation may protect them, the thinner markets may result in wider bid‑ask spreads and higher execution costs, possibly increasing costs for smaller traders.
Will Jane Street return to Indian markets?
Jane Street has deposited roughly ₹4,843 crore ($567 million) into escrow and is seeking the ban’s reversal. SEBI is still evaluating the request and the larger probe, so the outcome, and a possible return, is uncertain.
This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
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