As India’s market regulator, the Securities and Exchange Board of India (SEBI) banned the trading giant Jane Street Group from the local markets, which affected the Indian stock exchanges’ equity market fortunes in the week.
India’s oldest stock exchange, the Bombay Stock Exchange (BSE), saw its shares struggling in the week, while its larger rival, the National Stock Exchange’s (NSE) unlisted shares and valuation suffered.
BSE’s market optimism fades
BSE, Asia’s oldest stock exchange, which celebrated its 150th anniversary this week, has benefited from a surge in retail trading and derivatives activity.
The exchange is facing growing regulatory headwinds that threaten to alter the trading landscape that fueled its recent growth.
On Monday, a report highlighting mounting losses among retail investors in the equity derivatives market triggered fresh concerns that the Securities and Exchange Board of India (SEBI) may impose stricter curbs.
These anxieties were compounded by SEBI’s recent action against Jane Street Group LLC, a prominent global trading firm, which was barred from local markets over allegations of price manipulation. Jane Street has denied the charges.
This regulatory turbulence has had a direct impact on BSE’s stock.
On July 4, shares of the exchange suffered one of their steepest declines this year, extending a downward trend that began in June.
After soaring more than 200% in the past year, BSE’s stock is now down more than 20% from its June peak and closed Friday at its lowest level in nearly two months.
Jefferies Financial Group Inc. noted a sharp 25% week-on-week drop in index options premium turnover across both BSE and the National Stock Exchange of India Ltd. (NSE) on Thursday, the first major derivatives expiration day after the Jane Street ban.
The brokerage warned that this could reduce BSE’s earnings per share by 4% in the current fiscal year.
BSE’s derivatives growth meets regulatory resistance
While BSE has long lagged NSE in terms of cash equities trading, it has made significant strides in the derivatives segment.
Derivatives now account for more than half of the exchange’s revenue, with net income more than quadrupling to Rs 4.94 billion ($58 million) in the March quarter.
The exchange’s launch of derivatives tied to the Sensex and BSE Bankex Index has been instrumental to this growth.
CEO Sundararaman Ramamurthy, who took charge in 2023, told Bloomberg that the Sensex derivatives as “the world’s fastest-growing derivatives contract.” BSE has also invested heavily in infrastructure and transparency to meet rising investor expectations.
Yet the success of these initiatives could be tempered by new restrictions aimed at protecting retail investors from volatility and high-frequency trading risks.
NSE IPO prospects dented as private valuations slip
The impact of regulatory scrutiny also extended to NSE. India’s largest stock exchange, which dominates the derivatives market with a 90% share, has fallen from Rs 2,400 in May to Rs 2,150, according to UnlistedZone.
The pullback follows a strong rally in NSE’s unlisted shares driven by optimism surrounding its long-awaited IPO.
The private market’s peak briefly pushed NSE’s estimated worth to $69 billion, surpassing global peers such as Nasdaq Inc. and Deutsche Boerse AG.
That rally was bolstered by NSE’s efforts to resolve a longstanding legal dispute with SEBI, viewed as a key step toward a public listing.
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