Jane Street Fallout Sends Shockwaves Across Indian Markets

The Jane Street fallout has triggered fresh concerns across Indian stock markets after the Securities and Exchange Board of India (SEBI) imposed sweeping interim restrictions on the global trading giant. Among the many voices weighing in, Zerodha founder and CEO Nithin Kamath lauded SEBI’s bold move while warning about its potential impact on brokers, exchanges, and even retail investors.

Kamath called SEBI’s crackdown commendable, especially if the allegations of manipulation are proven. However, he also flagged an important concern the possible withdrawal of proprietary trading firms like Jane Street, which he says account for nearly 50% of options trading volumes in India.

“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,” Kamath said in a tweet.

SEBI’s Order Details and Fallout from Jane Street Case

The regulatory action follows SEBI’s 105-page order accusing Jane Street of manipulating the Bank Nifty index using complex intra-day strategies. The firm reportedly made over Rs 43,289 crore in options profits while deliberately booking losses worth Rs 7,208 crore in futures and equities to influence market movement, especially on expiry days.

Pending a detailed investigation, SEBI has completely restrained Jane Street and related entities from accessing Indian securities markets. It has also frozen their bank, demat, and custodial accounts, restricted them from selling or moving any assets, and ordered the deposit of Rs 4,843.57 crore in alleged unlawful gains into an escrow account. Jane Street has been given 21 days to respond or request a hearing, but until then, the restrictions remain in place. Jane Street fallout

Jane Street fallout, in response, has disputed SEBI’s findings and expressed intent to cooperate with the regulator, stating that it is committed to compliance with laws in all markets it operates in.

Will Jane Street Fallout Impact F&O Volumes?

Kamath pointed out that the next few days will be crucial in understanding the broader impact. “F&O volumes might reveal just how reliant we are on these prop giants,” he said. He also compared the Indian market’s stricter regulatory environment to the U.S., calling out practices like dark pools and payment for order flow that would not be allowed in India.

Market insiders and regulatory sources, however, have stated that the overall impact on derivatives volumes may be limited due to safeguards like delta-based limits already in place. Still, the concern among many market participants remains especially considering that Jane Street often clocked some of the largest F&O volumes on many trading days.

Kamath’s cautionary note is timely as it underscores a hidden structural dependence on high-frequency and proprietary trading firms in India. If firms like Jane Street begin to retreat in response to heightened scrutiny, the Indian markets could face reduced liquidity and volatility, particularly in the options segment.

Implications for Retail and the Way Forward

Retail investors, who have been active in India’s rapidly growing derivatives market, could also feel the pinch. A pullback by prop trading firms could reduce volumes and impact pricing efficiency, making it harder for smaller traders to navigate the market.

At the Jane Street fallout , Kamath believes this could be a moment of introspection and opportunity. A tighter, cleaner market environment may pave the way for more responsible trading and stronger capital formation in the long run. As SEBI continues its investigation, the industry will be watching closely for the ripple effects across trading platforms, brokerages, and investor sentiment.

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Conclusion:

The Jane Street fallout has opened up a broader conversation about the role of proprietary firms in Indian markets. While SEBI’s strong stance aims to protect fairness and transparency, the industry may need to prepare for short-term disruptions as a new market structure emerges.