Mutual funds sell 20 lakh shares of BSE after Jane Street case in July

Mutual funds have sold nearly 20 lakh shares of BSE after the Jane Street case in July and the stock saw a total outflow of Rs 400 crore in the same period, according to a report by Nuvama Institutional Equities.

The shares of BSE went down in July following reports that the Securities and Exchange Board of India (SEBI) is expanding its ongoing investigation into Sensex options in the index manipulation by U.S.-based trading firm Jane Street.

Also Read | HDFC Bank, Jio Financial Services among top stocks bought and sold by Quant Mutual Fund in July

Sebi stated that Jane Street manipulated major indices such as Nifty 50 and Bank Nifty on expiry days and the investigation covered indices of the BSE too, which have seen a surge in derivatives trading volumes over the last two financial years.

Market experts downgraded exchange stocks as a result. According to a report by ETMarkets, IIFL Capital downgraded BSE to ADD, citing near-term volume headwinds. "The current uncertainty in the market (ban on Jane Street + possible scrutiny on other players + risk of more regulations amid rising retail losses) would weigh on near-term Exchange volumes," the brokerage said.

Jane Street has, however, been allowed to re-enter the domestic markets after it fulfilled the Securities and Exchange Board of India’s (Sebi’s) direction to deposit alleged “unlawful gains” of Rs 4,844 crore in an escrow account before July 14.

Mutual fund portfolio

The report further shows that Invesco Mutual Fund sold 54.68 lakh shares of BSE from its portfolio in July. In the same period, HSBC Mutual Fund sold 10.47 lakh shares and Edelweiss Mutual Fund sold 3.30 lakh shares from their respective portfolios in the same time period.

Axis Mutual Fund reduced its stake in BSE whereas the stock was the top new entry for HDFC Mutual Fund.

The report by Nuvama showed that BSE was the top holdings in the small cap universe for Kotak Mutual Fund and Nippon India Mutual Fund.

Also Read | Bitcoin slides toward $113,000, Ethereum near $4,100: Here's what experts say

What was Jane Street case?

Sebi's investigation revealed what the regulator described as systematic market manipulation designed to profit from enormous index options positions. The alleged scheme involved Jane Street artificially influencing underlying stock and index prices to benefit their derivatives trading.

The firm was allegedly engaged in aggressive buying of Nifty Bank component stocks and futures during morning hours, artificially inflating prices.

Sebi explained that Jane Street entities "were aware that Nifty Bank was almost certainly likely to fall again by the end of the day, given their intent to aggressively sell back all of their morning purchases (and more)." Meanwhile, other traders "were unaware of all this, and were hence enticed to deal at a time that the Nifty Bank itself was being artificially and temporarily propped up."