By Nesil Staney
The fallout of curbs placed on Jane Street is likely to impact the market liquidity in the near term, however, things are expected to settle down within weeks, said market experts.
“Proprietary traders provide significant liquidity to the market. So, there could be some blip, if these players choose to take a cautious approach till things blow over,” said a large institutional player.
Most believe that things could go southwards only if other high-speed traders and algorithm-based market markets fail to step in.
Sebi sources, however, believe that any stock market should not be reliant on just a few players. “We have cleansed the system before and we will do it now and in future,” he added.
The first expiry after the Securities and Exchange Board of India’s (Sebi) interim order did not see much change in the turnover.
The total turnover of derivatives on expiry day on the Bombay Stock Exchange (BSE) was Rs 438.5 lakh crore on July 1, while on July 8 it stood higher at Rs 461 lakh crore. Except June 24, where the turnover was above 573 lakh crore, all the expiries in June were around Rs 400 lakh crore to Rs 450 lakh crore. February 25 was the lowest turnover this year with below Rs 300 lakh crore.
Another institutional broker that the market is likely to see more sanity, in terms of derivatives volumes and a short-term liquidity loss is good for the market. Most traders, he added, are in wait and watch mode, since no one knows what extent the impact on short-term liquidity would be.
“Some bit of sanity will get restored now,” said a third institutional broker. At the end of the day, they (JS) were market makers, he said. Jane Street was one of the biggest arbitrage traders, providing decent liquidity. “It will eventually revive. It will take a few weeks for the market to digest that one leg of participation is missing,” he said.
Dinesh Thakkar, Chairman and Founder of Angel One, a major discount brokerage, said that millions of retail traders and deepening institutional activity has ensured that the market is not dependent on any one entity.
F&O volumes in the coming weeks might reveal just how reliant we are, said Nithin Kamath, the founder & CEO of Zerodha on X.
“There need not be much directional change in the indices, as there could be no liquidity and Nifty levels can continue to be the same and vice versa,” a foreign portfolio investor (FPI) said.
Another fund manager said, in terms of liquidity, there may be a temporary drop of liquidity for about a week, if this order spooks all other high frequency traders. Even in that case it will become normal to post a week, he said. Prominent firms in algo-trading and high-speed trading, apart from Jane Street includes Citadel Securities, Optiver, IMC Trading, Flow Traders, Tower Research, Two Sigma, Jump Trading, Goldman Sachs, Hudson River and DRW.