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BSE Declines 13% Since SEBI's Jane Street Action; What's The Connection?
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Shares of BSE Ltd tumbled over 4% as investors continued to offload their shares amid regulatory overhangs and valuation concerns
Why Is BSE Stock Falling? Shares of BSE Ltd tumbled nearly seven per cent in trade on Tuesday, July 8, as investors continued to offload their shares amid regulatory overhangs and valuation concerns. Further, capital market stocks also saw significant selling pressure, even as Dalal Street extended its sideways movement.
BSE shares have also taken a 13 percent tumble since the markets regulator, 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.
SEBI also restrained Jane Street Group from accessing the local securities market, dealing a severe hit to the US trading firm that generated more than $2.3 billion in net revenue from equity derivatives in the South Asian nation last year.
At 10.10 a.m., BSE's stock price was quoting Rs 2,536, lower by 3.8 per cent compared to the previous session's closing price. 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 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.
'While we remain constructive on the company's long-term fundamentals, we believe the current valuations already reflect its medium-term growth prospects. At current price levels, BSE trades at over 45x FY27E core EPS, which appears stretched, especially in light of potential regulatory risks," the brokerage noted.
It added that the earnings impact on BSE is likely to be minimal, given that foreign portfolio investors (FPIs) contribute just 3–4% of derivatives turnover. The effect may be more pronounced for Nuvama, which was Jane Street's Indian trading partner.
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.
Citing exchange data, Jefferies highlighted that FPIs typically account for 3–8% of equity derivatives turnover, with proprietary traders contributing a dominant 60–65%. The rest comes from individual and other participants.
The key uncertainty now, Jefferies said, is whether this episode will have a broader impact on overall trading volumes. 'Next week's trend in derivatives volumes will be critical, especially with index derivatives expiries scheduled for Tuesday and Thursday," it said. On a positive note, index options premium turnover was slightly higher week-on-week on both exchanges last Friday, though still marginally below the two-month average.
Derivatives contribute nearly 58% of BSE's estimated revenues for FY26. Within this segment, FPIs drive just 3–4% of turnover, and Jane Street's share is estimated at only 1%.
'Hence, the earnings impact on BSE is likely to be limited. A 100 basis point hit to our FY26 premium estimates would reduce EPS by only 60–70 basis points," Jefferies concluded.
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