BSE Declines 13% Since SEBI’s Jane Street Action; Unpacking the Connection
Shares of BSE Ltd have been witnessing a sharp decline since the Securities and Exchange Board of India (SEBI) cracked down on proprietary trading firm Jane Street, alleging that the foreign portfolio investor used manipulative strategies to profit from the indices.
Regulatory Overhangs and Valuation Concerns
BSE shares have tumbled nearly seven per cent in trade, as investors continued to offload their shares amid regulatory overhangs and valuation concerns. The capital markets pack was also lagging, with Angel One, CDSL, and 360 ONE WAM shares sinking up to 3.5 per cent.
ICICI Securities Raises Caution
ICICI Securities has raised caution over BSE shares, citing multiple headwinds including regulatory restrictions, the recent change in the derivatives expiry day, and elevated valuation multiples. The brokerage also pointed out that BSE’s premium average daily turnover (ADTV) dropped 12.4% month-on-month to Rs 13,900 crore in June, following sharp increases in April and May.
Jefferies Seeks to Ease Investor Concerns
Jefferies sought to ease investor concerns, stating that its conversations with market participants suggest the impact of Jane Street’s exit from Indian markets could be contained. The brokerage said a fall in turnover may be offset by proprietary and high-frequency traders, especially if manipulative activity reduces as a result of SEBI’s crackdown.
Earnings Impact Minimal
According to Jefferies, there’s no counterparty risk from Jane Street’s open positions, as these are backed by clearing corporations and the firm has up to three months to wind down its trades. It also noted that hedge funds typically hold larger exposures in Single Stock Futures (SSFs), with a more limited presence in options.
The brokerage further explained that Jane Street operated both as an FPI and a trading member in Indian markets, meaning its volumes were counted under both FPI and proprietary categories. ‘Since SEBI’s investigation had been underway for some time, Jane Street’s trading activity had already declined over the past few months,’ it added.
Key Takeaways
• BSE shares have tumbled nearly seven per cent in trade, as investors continued to offload their shares amid regulatory overhangs and valuation concerns.
• ICICI Securities has raised caution over BSE shares, citing multiple headwinds including regulatory restrictions, the recent change in the derivatives expiry day, and elevated valuation multiples.
• Jefferies sought to ease investor concerns, stating that its conversations with market participants suggest the impact of Jane Street’s exit from Indian markets could be contained.
Conclusion
The connection between BSE Ltd’s decline and SEBI’s Jane Street action is clear: regulatory overhangs and valuation concerns are driving the sell-off. While Jefferies has sought to ease investor concerns, the earnings impact on BSE is likely to be minimal. However, the impact on overall trading volumes remains a key uncertainty.
