Shares of several capital market service providers—including BSE, Angel One, Motilal Oswal Financial Services, CDSL, and Edelweiss Financial Services—saw sharp declines on Thursday following the Securities and Exchange Board of India (SEBI) issuing a ban on Jane Street Group and associated entities for allegedly manipulating the Bank Nifty index on expiry days.
Stocks React to SEBI Action
The fallout from SEBI’s July 3 interim order was immediate:
- BSE shares plunged 6.12% to ₹2,647.30.
- Angel One fell 7.32%.
- Motilal Oswal Financial Services dropped 2.62%.
- Central Depository Services Ltd (CDSL) slipped 2.26%.
- Edelweiss Financial Services declined 0.91%.
Analysts attributed the sell-off to fears that trading volumes may drop, as Jane Street is known for being a high-volume trader in derivatives and options, contributing significantly to market liquidity.
The Alleged Manipulation Strategy
SEBI’s investigation alleges a systematic index manipulation strategy executed by Jane Street entities on 14 Bank Nifty expiry days:
- Morning session: They bought Bank Nifty futures and stocks aggressively while selling large volumes of options.
- Afternoon session: They reversed their futures positions, allegedly dragging the index down before closing.
This strategy was allegedly designed to engineer a softer index close, allowing Jane Street to profit heavily on short options positions.
One example cited was January 17:
- Bought ₹4,370 crore in Bank Nifty futures in the morning.
- Sold ₹32,115 crore worth of options.
- Later sold ₹5,372 crore in Bank Nifty futures.
- Despite a ₹61.6 crore loss in futures and cash positions, Jane Street netted a ₹673.4 crore profit, with a peak short position of ₹46,620 crore.
SEBI’s Interim Order Highlights
- Bar on trading: Jane Street entities are prohibited from accessing Indian securities markets—directly or indirectly.
- ₹4,843 crore in “unlawful gains” impounded.
- Bank accounts frozen: Debits require SEBI’s permission.
- Open positions in exchange-traded derivatives must be squared off within three months or by contract expiry, whichever is earlier.
The SEBI order is a significant regulatory move to curb sophisticated forms of index manipulation and highlights how quant-driven high-frequency trading firms may face increasing scrutiny in Indian markets.
Investors and brokers are now closely watching the broader market implications, particularly on expiry days, when volumes and volatility typically peak.
