Jane Street ban will not impact derivative volumes, will aid responsible investing and capital formation, says SEBI source

"In any case, delta-based (future equivalent) limits are now in place in index options, to curtail excessive risk taking without impacting regular participants. In the long run, the growth in market confidence, and a free and fair market, should aid responsible investing and capital formation," added the source on conditions of anonymity.

SEBI action banning high frequency trading firm Jane Street from trading in the securities market is unlikely to have a significant impact on the derivative volumes even though the global major was found to be clocking huge volumes in futures & options (F&O), said a regulatory source.

"There should not be any major market impact from this enforcement action," said a SEBI source.

"In any case, delta-based (future equivalent) limits are now in place in index options, to curtail excessive risk taking without impacting regular participants. In the long run, the growth in market confidence, and a free and fair market, should aid responsible investing and capital formation," added the source on conditions of anonymity.

This assumes significance as many market participants have expressed concerns that a ban on Jane Street would affect the volumes as the quantum of F&O trading by Jane Street was the largest on many days and miles ahead of the next biggest participant.

In a social media post, Zerodha Founder & CEO Nithin Kamath said that while SEBI has done a great job by going after Jane Street, retail activity could take a hit with firms like Jane Street gone.

"... there’s a flip side. Prop trading firms like Jane Street account for nearly 50% of options trading volumes. If they pull back— which seems likely —retail activity (~35%) could take a hit too. So this could be bad news for both exchanges and brokers... The next few days will be telling. F&O volumes might reveal just how reliant we are on these prop giants. I’ll share more data as and when anything interesting turns up," stated Kamath's post.

In a similar context, Preeti Chhabra, Independent Derivatives Analyst said that there could be a sudden liquidity crunch as there is disruption of a major volume provider.

“In the longer run, it’s a positive for investor confidence and market oversight, but in the short term, the exit of such large players will be felt," said Chhabra.

Derivative market participants say Jane Street was one of the most active institutional players in weekly options — particularly on expiry days — often trading in thousands of crores and deploying advanced execution strategies. Its sudden absence could impact spreads and volumes, they say.

In an order issued on Friday, SEBI banned Jane Street and its India arm, JSI Investment Pvt Ltd, from trading in Indian securities, and sought to impound Rs 4,843.5 crore in alleged unlawful gains linked to expiry-day manipulation using cash and futures trades to distort options pricing.

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