A steep decline has gripped Indian exchange stocks after the high-profile regulatory crackdown on US-based quant trading firm Jane Street, which was barred from participating in Indian markets earlier this month. In just over four weeks, investors have seen a combined Rs 1.4 lakh crore wiped out in the market capitalisation of BSE and NSE. The cascading impact of regulatory scrutiny, crashing derivatives turnover, and cautious sentiment among brokerages has driven BSE and NSE stocks deep into correction territory, with analysts warning of more downside in the near term.
The trigger for the turmoil came on July 3 when SEBI passed an explosive interim order accusing Jane Street of manipulating the Nifty Bank index and ordered the freezing of Rs 4,840 crore in assets linked to the firm. This order sent shockwaves across the trading ecosystem, especially in the high-frequency trading community, where Jane Street is considered a key player. Since then, BSE’s shares have fallen over 22% from their peak of Rs 3,030 on June 10 to Rs 2,376, leading to an erosion of Rs 26,600 crore in its market valuation. NSE has seen its share price tumble 18%, with its valuation declining by Rs 1.15 lakh crore.
The impact of the ban was evident almost immediately. On the first weekly expiry post the order, NSE’s notional turnover in index options dropped by 21%, sliding from Rs 601 trillion to Rs 472.5 trillion. Premium turnover also saw a drastic 40% drop, marking the lowest expiry-day figure since March. BSE’s option premium average daily turnover (ADTO) fell 25% in the first eight sessions of July compared to June. The sharp fall in volumes coincided with growing caution from investors and a fresh round of downgrades from leading brokerages.
Brokerage firms like IIFL Capital and Motilal Oswal have cut their ratings on exchange stocks. IIFL downgraded BSE to ‘ADD’ from ‘BUY’, citing uncertainty from SEBI’s evolving regulatory framework and falling volumes in the derivatives segment. The firm also flagged rising risks of increased regulatory scrutiny on other market participants and the potential for broader volume fatigue due to waning retail activity. The expiry-day reshuffle, another regulatory measure, has added to the volatility. Effective from September 1, NSE will move its expiries to Tuesday while BSE has already shifted to Thursday. IIFL estimates BSE could lose 10–12% of its trading volume due to this reshuffle alone, cutting its valuation multiple from 50x to 45x and assigning a revised fair value of Rs 2,200 per share.
SEBI's push to clean up the derivatives space is beginning to weigh heavily on retail participation. According to its latest data, retail investors lost a staggering Rs 1.05 lakh crore in the F&O segment in FY25. While the number of retail traders jumped from 86.3 lakh in FY24 to 96 lakh in FY25, the average loss per trader surged by 27% from Rs 86,728 to Rs 1,10,069. The rise in individual traders has not been matched by an improvement in risk management or outcomes, triggering alarms for the regulator.
The November 2024 regulatory measures that aimed to restrict the misuse of derivatives are starting to have a more pronounced impact. Between December 2024 and May 2025, index option turnover fell 29% year-on-year in notional terms and 9% in premium terms. The number of individual traders active in the segment also declined by 20%. These figures suggest that the clean-up is not just curbing speculative activity but also thinning out overall market participation.
Jefferies noted that Jane Street accounted for approximately 1% of BSE’s turnover. While this may appear minor in isolation, the broader effect of increased regulatory monitoring on high-frequency and algorithmic traders—who contribute 55–60% of derivatives volumes—is expected to be more significant. Jefferies added that a 100-basis-point decline in FY26 premium estimates could trim earnings by about 60–70 basis points, a manageable figure but not insignificant.
India’s market volatility index, the India VIX, also dropped to 12 in July, down from 14 in June and 16 in the first quarter of FY26. This cooling of volatility, while typically seen as a stabilizing signal, has actually contributed to the subdued derivatives activity, since lower volatility tends to reduce options premiums and trading incentives.
Despite the headwinds, some analysts maintain a cautiously optimistic outlook. IIFL believes that once regulatory uncertainty clears and the expiry calendar stabilizes, a 15–20% earnings upgrade could still be on the cards for BSE and NSE over the medium term. However, the near-term outlook remains challenging. With falling retail activity, lower volumes, and the likelihood of further regulatory tightening, both exchanges may continue to face pressure.
The Jane Street episode marks a turning point for India’s derivatives market. While the clean-up is aimed at ensuring greater transparency and protecting retail participants, the road ahead is expected to be turbulent. Market participants, regulators, and investors will need to strike a careful balance between growth, governance, and stability. For now, however, the pain for exchange shareholders and active traders may not yet be over.
