Impact of Jane Street Ban and F&O Issues: BSE and NSE Shareholders Face Significant Losses

Shares of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have experienced a significant downturn, largely attributed to the recent controversy surrounding Jane Street, regulatory actions in futures and options trading, and declining derivatives volumes. This turmoil has resulted in a staggering Rs 1.4 lakh crore loss in market capitalization, pushing BSE shares into a bear market and bringing NSE shares close to a 20% decline. The situation escalated following a directive from the Securities and Exchange Board of India (SEBI) that prohibited Jane Street from operating in Indian markets, alleging manipulative practices.

Impact of Regulatory Actions

The fallout from SEBI’s actions against Jane Street has been immediate and severe. The regulatory body froze assets worth Rs 4,840 crore, claiming that the firm was involved in a “well-planned and sinister scheme” to manipulate the Nifty Bank index. This led to a sharp decline in derivatives trading volume, prompting brokerages to reassess their ratings for exchange stocks. Analysts predict that the ongoing scrutiny and potential for stricter regulations will weigh heavily on exchange volumes in the near term.

BSE shares have plummeted by 22% from their peak of Rs 3,030 on June 10, now trading at Rs 2,376. This decline has resulted in a market value reduction of Rs 26,600 crore. Similarly, NSE has seen a drop of 18%, with shares falling from Rs 2,590 on June 21 to Rs 2,125, translating to a Rs 1.15 lakh crore decline in market capitalization. The immediate aftermath of Jane Street’s ban was evident in the first Nifty weekly contracts expiry, where NSE’s total turnover fell by 21% compared to the previous expiry session.

Analysts’ Ratings and Market Sentiment

In light of these developments, financial analysts are revising their ratings for exchange stocks downward. IIFL Capital has downgraded BSE’s rating to “ADD,” citing anticipated challenges in trading volumes. The firm noted that the current market uncertainty, stemming from the ban on Jane Street and the risk of increased regulatory scrutiny, would likely impact near-term exchange volumes. Similarly, Motilal Oswal has expressed concerns about BSE’s market share, leading to a neutral rating.

The overall sentiment in the market reflects a growing apprehension among investors. Anand James, Chief Market Strategist at Geojit Investments Limited, indicated that BSE’s stock has entered a bear trend, with sustained declines over the past fortnight. The drop in derivatives trading volumes is particularly alarming, as BSE’s Option Premium Average Daily Turnover (ADTO) fell by 25% in early July compared to June’s average. This trend raises concerns about the future profitability of exchange stocks.

Challenges for Retail Traders

The situation for retail traders has also deteriorated significantly. Recent data from SEBI reveals that retail traders in India suffered substantial losses of Rs 1.05 lakh crore in derivatives trading during FY25. Despite an increase in the number of individual derivative traders from 86.3 lakh in FY24 to 96 lakh in FY25, the average loss per trader surged by 27%, escalating from Rs 86,728 to Rs 1,10,069.

The regulatory changes introduced by SEBI, including a shift in equity derivatives contract expiry days, have further complicated the landscape for traders. Starting September 1, 2025, NSE will change its equity derivatives expiry from Thursday to Tuesday, while BSE will switch from Tuesday to Thursday. These adjustments are expected to create additional challenges for traders, particularly in light of the declining volumes and increased regulatory scrutiny.

Future Outlook for Exchanges

Looking ahead, the outlook for BSE and NSE remains uncertain as they navigate through these turbulent waters. Analysts anticipate that the upcoming September expiry swap may exacerbate existing challenges, with IIFL Capital projecting a 10-12% volume reduction for BSE following its expiry shift. The brokerage has adjusted its valuation multiple for BSE from 50x to 45x, setting a target price of Rs 2,200, indicating a potential decline of 11%.

The ongoing regulatory scrutiny and the rising losses among retail investors suggest that SEBI may implement further measures to restrict option trading volumes. As the derivatives market undergoes restructuring, exchange shareholders are likely to bear the brunt of these regulatory changes. Market participants are bracing for continued difficulties as the situation evolves, highlighting the need for vigilance in this challenging environment.

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