The derivatives turnover has declined to multi-month lows. Weekly turnover is down nearly 20%, and through the week, the markets exhibited a muted and range-bound trend. The big question is what led to the decline. What is the impact of the SEBI ban on Jane Street? Key market observers and F&O experts believe that the absence of key market participants, particularly high-frequency trading (HFT) players such as Jane Street and similar arbitrageurs, contributed to reduced liquidity and narrower trading ranges. But that’s not the only reason.
Trading volumes in the derivatives market have been seeing incremental decline for over 5 months now. Though the recent crackdown by SEBI has weighed on sentiment, the changes in the derivative market that came into effect from July 1 also played a key role. Here is a look at the three reasons that triggered the big decline.
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The three main reasons why turnover has fallen sharply-
1.SEBI bans Jane Street for manipulative trading
Last week, on July 4, SEBI issued an interim ban on Jane Street, a US trading giant, for undertaking manipulative trade in Indian markets. As per the market regulator’s 105-page report, the company had employed multiple strategies, like the “Intra-day Index Manipulation” strategy and the “Extended Marking The Close,” to earn a total profit of Rs 36,502.2 crore. Out of this, SEBI has identified Rs 4,843.57 crore as unlawful gains.
1 week on, derivative volumes have seen significant drawdown. Chandan Taparia, Senior Head Derivatives & Technicals, Wealth Management, Motilal Oswal Financial Services, highlighted that “The FIIs long-short ratio is hovering near 28%, and index is witnessing some sort of pressure on upper levels. Now till holds below 25550, weakness can be seen towards the 25,222 and then 25,150 zones, while hurdles at 25,550 and then 25,650.”
While the SEBI order has created short-term disruptions, especially in the arbitrage and high-frequency trading ecosystem, the long-term outlook for Indian markets remains robust, as per Narinder Wadhwa, MD & CEO, SKI Capital Services, “As long as the regulatory environment remains transparent and no further enforcement actions disrupt a wider segment of the market, the long-term participation of international players is unlikely to be severely impacted. However,
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