Shares of Indian brokers, BSE drop as regulator bars Jane Street

By Vivek Kumar M and Kashish Tandon

July 4 (Reuters) - Shares of some Indian stockbrokers and market intermediaries fell on Friday after the country's securities regulator barred U.S. trading firm Jane Street from the local market over alleged manipulation in derivatives trading.

The Securities and Exchange Board of India (SEBI), in an interim order dated July 3, stated that Jane Street, one of the world's largest quant trading firms, would no longer be able to participate in the domestic securities market.

The order is based on SEBI's initial investigation, and the ban will stay in place till a final order is issued after the completion of the investigation.

Jane Street, in an emailed response, disputed the findings of the SEBI interim order and said it will further engage with the regulator.

Angel One ANGO.NS, one of India's top brokerage firms, slumped 6%. Stock exchange BSE BSEL.NS was trading 6.4% lower and Central Depository Services (India) CENA.NS fell 3.5%.

Nuvama Wealth Management NUVA.NS, which is Jane Street's India trading partner, fell more than 9%. The company did not respond to a Reuters request for a comment.

Equity benchmarks Nifty 50 .NSEI and BSE Sensex .BSESN were trading flat on Friday afternoon.

Some analysts said the regulator's action could impact derivative volumes in the near term, which triggered a drop in the shares of market participants.

"We may see some nervousness or pain in the short term in terms of volumes. But market integrity is crucial from a longer-term perspective as it (the regulatory action) helps build confidence among traders," said UR Bhat, co-founder of Alphaniti Fintech.

Derivatives trading is booming in India, where participation of retail traders has skyrocketed.

In a study last year, SEBI said retail traders made net losses totalling $21.7 billion in futures and options trading in the three years to March 2024.

Most of the profits were generated by larger entities that used trading algorithms, with 97% of foreign investors' profits and 96% of proprietary traders' profits coming from algorithmic trading, SEBI said.

"We've already seen average premium turnover on the NSE and the BSE come down 17% and 13%, respectively, in June", when it became known that SEBI was investigating Jane Street, said Amit Chandra, vice president at HDFC Securities.

"What we are seeing now is a more realistic volume that we can expect and it will take some time for volumes to go up from here on," Chandra said.