BSE’s 900% rally in peril as Jane Street ban sparks sell-off

Asia’s oldest stock exchange has found itself in the spotlight for the wrong reasons, just as it was preparing to mark its 150th anniversary. A regulatory crackdown and a high-profile trading ban have shaken confidence in BSE Ltd., threatening to end a rally that sent its stock surging over 900 per cent in just two years.

What happened?

BSE’s troubles deepened in early July when India’s market regulator cracked down on alleged price manipulation in the booming derivatives trade. According to Bloomberg, the Securities and Exchange Board of India (SEBI) barred Jane Street Group, a major US high-frequency trading firm, from local markets, accusing it of distorting prices at the expense of small investors. Jane Street has denied the allegations.

This move followed rising concern about retail investors suffering mounting losses in India’s thriving derivatives market, a segment that had turned into a goldmine for exchanges like BSE. The regulatory scrutiny sent shockwaves through the market. Bloomberg reports that trading volumes slumped, and BSE’s stock price tumbled sharply, recording one of its worst single day declines this year. By early July, its share price was down more than 20 per cent from its June highs, wiping away part of the stunning rally that had powered it to record valuations.

Why it matters?

The fallout raises serious questions about the sustainability of BSE’s recent success. Fueled by an explosion in derivatives trading, BSE’s profits had soared. Derivatives now make up more than half its revenue. The exchange’s net income jumped over four times year-on-year to nearly 5 billion rupees ($58 million) in the March quarter, Bloomberg notes.

But the same speculative boom that brought in profits has also drawn regulatory scrutiny. SEBI had already moved last year to cool options trading volumes, and analysts fear more restrictions could follow. According to Bloomberg, brokerage Jefferies estimates that the Jane Street ban and the resulting dip in trading activity could shave several percentage points off BSE’s annual earnings per share. Market watchers say BSE now faces a turning point. It will need to show that it can adapt its business model, invest in new products, and protect retail investors if it wants to maintain its growth.

BSE's historic legacy

Founded in 1875 in Mumbai, BSE is Asia’s oldest stock exchange. What started as a group of brokers trading under a banyan tree has grown into a marketplace with over 5,000 listed companies. Its journey has included big reforms. After India’s infamous Harshad Mehta scam in the early 1990s shook investor confidence, SEBI was strengthened, and the fully electronic National Stock Exchange (NSE) was created, quickly becoming BSE’s toughest rival.

In recent years, BSE has invested heavily to modernise its platform and improve transparency. CEO Sundararaman Ramamurthy told Bloomberg the exchange’s derivatives contracts tied to its flagship Sensex index have become the fastest-growing in the world. Yet despite those achievements, BSE’s share of India’s daily cash trading remains stuck at around 6 per cent, well behind NSE.

Looking ahead

Investors remain divided on what comes next.

Some see SEBI’s crackdown as necessary to ensure markets remain fair and safe, especially for retail traders. Others worry that tighter rules will dampen the speculative trading that boosted BSE’s revenues.

Dubai-based investor Siddharth Balachandran, one of BSE’s largest private shareholders, told Bloomberg he welcomes stricter oversight. For him, the exchange is still a proxy for India’s long-term growth story and one worth holding onto. As BSE marks its 150th year, its leadership is being tested once again. It will need to balance growth ambitions with market integrity to prove it can thrive in an era of tougher scrutiny.