The shares of leading capital market participants like BSE, CDSL, Angel One, Nuvama Wealth, etc, plunged heavily today after SEBI barred US trading firm Jane Street for engaging in derivatives trading, citing various manipulations. In this article, we will have a closer look.
According to SEBI, Jane Street and its other three entities indulged in illegal gain through derivatives trading, amounting to Rs 4,843 crore, which is now be deposited into an escrow account (a secure account where funds are held by a third party until specific conditions are fulfilled) with a scheduled commercial bank. During the last two years, it made a profit of over Rs 36,000 crore.
The market watchdog flagged several transactions where it bought large amounts of Bank Nifty futures and stocks in the morning while aggressively selling Bank Nifty options. Later in the day, they would sell futures, impacting the closing level of the index.
For instance, on January 17, 2024, Jane Street reportedly bought Bank Nifty futures worth Rs 4,370 crore, sold options worth Rs 32,115 crore, and later sold futures worth Rs 5,372 crore.
Jane Street’s trades resulted in a huge short position of Rs 46,620 crore in the options market. That day, the firm made a profit of Rs 735 crore from trading. However, it faced a loss of Rs 61.6 crore in futures and cash segments. ending the day with a net gain of Rs 673.4 crore.
On another occasion, on July 10, 2024, the firm engaged in similar activities, creating large short positions in both Bank Nifty futures and options. They reportedly earned a profit of Rs 225 crore by influencing a softer index close.
But what does it have to do with market participants?
Nuvama Wealth plunged 12 percent following the news as it has been found that Jane Street is one of the client of Nuvama. However, SEBI has not explicitly mentioned the brokerage name in its circular, but it is expected that it is used to trade largely with Jane Street.
While SEBI’s order specifically targets Jane Street and its associated entities, the impact was felt throughout capital market intermediaries. Angel One, CDSL, and BSE experienced sharp declines, likely due to worries about increased regulatory scrutiny on brokerage and trading activities.
CDSL, a major depository, and BSE, a leading exchange, could face temporary pressure from negative sentiment amid fears of stricter compliance or audits related to foreign institutions. Likewise, Angel One, a top retail broker, may have seen selling as the market speculated about wider exposure or tighter rules regarding derivatives. These stock movements are mostly driven by market speculation and sentiment, rather than any direct claim by SEBI against these companies.
Written by Satyajeet Mukherjee
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