NEW DELHI: India’s booming futures and options (F&O) market saw a sharp dip in trading activity last week, with volumes dropping by nearly 20%, following Securities and Exchange Board of India’s (Sebi) ban on New York-based quantitative trading firm Jane Street over alleged market manipulation.The daily average turnover in index options on the NSE, which dominates India’s derivatives trade fell by 17.4% compared to the previous week. Analysts said that a quick recovery to recent peak volumes appears unlikely, potentially impacting earnings for stock exchanges in the near term.“The recent dip in options turnover is likely due to the exit of a large market-making participant, which has impacted market liquidity and efficiency,” Vaibhav Sanghavi, CEO, ASK Hedge Solutions told ET.Sebi issued an interim directive last week, alleging that the US-based firm orchestrated deliberate market manipulation and accumulated profits of approximately Rs 36,500 crore.The regulatory body’s investigation revealed that Jane Street conducted concurrent transactions across various market segments, including cash equities, stock futures, index futures and index options, allegedly in a calculated manner to influence market movements.The regulatory investigation revealed that Jane Street maintained “consistently the largest risks in ‘cash equivalent’ terms in F&O, particularly on index option expiry days.” Jane Street’s absence has influenced other major firms to reduce their trading volumes.Thursday’s weekly options expiry, traditionally the most active trading session, witnessed a decline of over 21% in turnover to approximately Rs 472.5 lakh crore from Rs 601.2 lakh crore the previous week, according to ETIG data.Vipin Kumar, assistant vice-president of derivatives and technical research at Globe Capital Market, said that index futures volumes dropped nearly 24% during the expiry week of July 4–10, while index options volumes declined by 16.5%, compared to the previous expiry week.Shares of both BSE and NSE (not listed) took a hit amid the drop in trading volumes. Since Sebi issued its order on July 3, NSE’s unlisted shares have fallen by 6% as of July 13, while BSE’s listed stock has declined 16%, according to data from unlistedzone.com.“On July 11, Nifty breached that range on the downside and we recorded a sharp uptick in the volumes of index futures, stocks futures and stocks options that were up by 17%, 18% and 28%, respectively compared with the same day the previous week,” Sanghavi told ET.Sanghavi further added that while this surge may temporarily lower overall turnover, it helps create a more balanced market by reducing the edge held by high-frequency or algorithmic traders, who typically contribute 40-45% of options trading volumes.
