Traders Watch Indian Expiry Day For Fallout From Jane Street Ban
The India NSE Volatility Index headed for its lowest level in more than a year.
Traders are scrutinizing India’s derivatives market, watching for signs of unusual trading following a ban on Jane Street Group. Volatility and options volume are in focus as the expiration day unfolds.
The benchmark NSE Nifty 50 Index opened little changed, with its biggest components — HDFC Bank Ltd., Reliance Industries Ltd. and ICICI Bank Ltd. — barely moving. While it slipped 0.3% lower by 2:35 p.m. Mumbai time, the India NSE Volatility Index headed for its lowest level in more than a year, and Nifty 50 options trading was more than half the volume on last Thursday’s expiration.
Investors have been waiting for this day to see if the Securities and Exchange Board of India order released last Friday would have any impact on the market. It’s on Thursdays that about half of the nation’s equity-derivatives expire — a day at the center of Jane Street’s lucrative strategy that SEBI called market manipulation. The US giant has denied the allegations, saying it was deploying common arbitrage trades.
Investors are being careful given SEBI’s “strong vigilance,” said Tejas Shah, head of equity derivatives at Equirus Securities in Mumbai. “No players would want to enter their bad books,” he said.
Any surprise change in index levels Thursday would be a key flag, according to Abhishek Shah, a Mumbai-based proprietary trader.
More clarity on the impact of the Jane Street ban may emerge when the nation’s leading bourse, the National Stock Exchange of India Ltd., releases its daily report on derivatives volume and options prices after the end of trading. Nimish Maheshwari, an analyst with Beat The Street who publishes on the Smartkarma platform, said he expects a 20% to 30% drop in options volume on weekly contracts relative to previous expiries as large trading firms will hold off deploying strategies similar to Jane Street’s.
On Tuesday, when the less liquid options on the BSE Sensex Index expired, volume remained in line with previous expirations. That said, the cost of the contracts traded on the BSE Ltd. exchange was 4% below the previous expiration and 28% lower than the eight-week average excluding month-end Tuesdays, according to a note from brokerage Ambit Capital.
SEBI has been cracking down on derivatives trading after a 40-fold growth turned India into the world’s biggest market for the contracts, with retail investors losing billions of dollars on the bets. While the cubs have tamed down the trading, their losses have worsened, a report from the regulator showed earlier this week.
