Shares of BSE Ltd. plunged more than 6 per cent on Friday, closing at Rs 2,647.30, as investor concerns rose after the Securities and Exchange Board of India (SEBI) took stringent action against US-based trading firm Jane Street. The regulator barred Jane Street from Indian markets, accusing the firm of manipulating equity derivatives through high-frequency trading (HFT) tactics.

In its 105-page interim order, SEBI alleged that Jane Street and its affiliates distorted benchmark indices including Nifty 50 and Bank Nifty by deploying aggressive HFT strategies. These manipulative trades reportedly misled retail investors while allowing Jane Street to earn unlawful profits of Rs 4,840 crore in the Indian options market.

A highlighted example is Jane Street’s “Intra-day Index Manipulation” on January 17, 2024, where the firm purchased Rs 4,370 crore worth of Bank Nifty stocks to artificially inflate the index, then reversed the positions while holding bearish options, netting Rs 734.93 crore in a single day. This strategy was used on 15 of 18 trading days reviewed, with an “Extended Marking the Close” tactic employed on the other days.

Though Jane Street’s direct trading volumes on BSE are under 1 per cent and foreign portfolio investors (FPIs) constitute about 4 per cent of BSE volumes, the SEBI action triggered a significant market sell-off.

Kunal Kamble, Sr. Technical Research Analyst at Bonanza, provided insight on the technical impact:

“BSE had been trading in a narrow range over the past eight sessions, but today buyers exited, leading to profit booking and a sharp ~4 per cent decline. The stock is now below its 9 and 21 EMAs, signaling a negative minor trend. It is forming a Lower High, suggesting ongoing weakness. The RSI dropping below 51 reflects diminishing bullish momentum. The stock may further correct towards the 50 EMA around Rs 2,550, with a move above Rs 2,870 needed to renew short-term buying interest.”

The SEBI order sends a strong message reinforcing regulatory oversight of market manipulation and high-frequency trading in India’s equity derivatives segment. While Jane Street’s direct financial exposure to BSE is small, the move has shaken investor confidence, fueling volatility.

Investors should monitor technical levels closely amid this regulatory uncertainty and anticipate further developments that could influence trading sentiment and volumes.