HFTs drove index options activity. Then came the Jane Street jolt

Mint

31-07-2025

High-frequency traders or HFTs, among the top liquidity providers for index options, have curbed their activity and are in a 'wait and watch" mode after the market regulator cracked down on US hedge fund Jane Street and rolled new position limits for derivatives, according to the National Stock Exchange's top executive.
"Jane Street naturally is a revelation to many, and currently is more a surveillance matter, which we don't discuss," said Ashishkumar Chauhan, managing director and chief executive officer of NSE, during an investor conference call on Wednesday, a day after the bourse announced its first quarter earnings.
"Even I am not privy to that because it's between our surveillance department and Sebi, but basically the Jane Street part will naturally affect some of the HFT firms in thinking about what they are doing," Chauhan said. 'Hopefully, they will reconsider their strategy in case they are doing something really wrong, and then come to the right path, because Indian markets usually allow everyone to do what is correct."
Sebi crackdown
The Securities and Exchange Board of India, in an interim order on 3 July, directed Jane Street to deposit illegal gains of around ₹4,844 crore in a bank escrow account for alleged manipulation of indices like Bank Nifty and Nifty between August 2023 and May 2025, and to also cease trading till it complied with this order. Within 10 days, the firm deposited the amount with a lien in Sebi's favour. The exchanges re-enabled Jane Street to commence trading from last Tuesday, but the firm has not been actively trading, according to market participants.
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Queries emailed to Jane Street earlier went unanswered, while exchange officials were not immediately available for comment.
HFTs provide the bulk of the liquidity to the equity options segment on the NSE. HFTs were among just 10,000 investors, or 0.2% of 32.7 lakh total base that contributed 70% of the total options' premium turnover of ₹10.3 trillion last month, with each trading above ₹10 crore, shows NSE data. By comparison, small retail investors who traded less than ₹10,000 each made up 14% of all investors but contributed just 0.01% of the overall turnover. Those trading ₹10,000 to ₹1 lakh each accounted for 24% of the investor base but contributed 0.2% of the overall volumes.
The premium turnover in June was down 17.7% from the preceding month and 39% from a year ago.
" ..the drop in activity (on options) is quite noticeable, particularly with the high-frequency traders, for instance, who are on a wait-and-watch mode as further changes and further developments are very much sort of being watched," said Sriram Krishnan, chief business development officer of NSE.
'We see it as an evolving space, and we will be guided by the regulators in terms of what reforms they want to roll out," he said. 'Position limits is an important topic. It's being rolled out in a phased manner, beginning July, going all the way to a later part of this year."
Earlier, while foreign portfolio investors (FPIs) had a ₹500 crore end-of-day position limit each on options and futures, there was no intraday cap. Sebi has now specified an intraday limit of ₹1,500 crore and an end-of-day gross limit of ₹10,000 crore. According to market participants, it's still early to determine the impact of these changes.
Krishnan said the global tariff-related sentiment was also affecting market sentiment, leading to a drop in options volumes.
"The global trade and tariff uncertainty are also adding to the current sentiment; structural impact of losing one major liquidity provider, plus the fear of spikes, lack of clarity, etc. are other factors which have been highlighted by market partners in terms of why there has been a recent drop in volumes," he said.
Since regulatory actions, such as reducing weekly options expiry to one and tripling the contract size, were rolled out to curb retail frenzy in the second half of last year, the number of participants in NSE's derivatives segment dropped to 30 lakh by March this year, the lowest in almost two years, per exchange data. While this improved to 33.5 lakh by June this year, participation remained well below last fiscal year's monthly average of 42 lakh.
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A Sebi study released earlier this month, covering FY22 to FY25, showed 91% of individuals lost money trading in derivatives, with each trader losing ₹1.06 lakh in FY25 compared with a loss of ₹74,812 per trader in FY24.
NSE's top management also said it was awaiting Sebi's no-objection certificate for its initial public offering and considering launching Vix futures after receiving market feedback.