HFTs pull back from BSE’s index options as extreme swings trigger manipulation fears
New Delhi: Several high-frequency trading (HFT) firms have sharply reduced activity in BSE’s index options over the past month, rattled by sudden intraday swings of 150×–200× on weekly expiry days and concerns over potential order-book manipulation.
In recent weeks, liquidity in multiple Sensex option contracts has been disappearing seconds before explosive price spikes and returning immediately after—behaviour dealers say points to growing fragility in market microstructure. On December 3, two contracts illustrated the turbulence:
1. 87,100 CE swung between a high of Rs 11.20 and a low of Rs 0.05, a 22,300% intraday range, with the day’s high nearly doubling its previous close.
2. 87,800 CE moved between Rs 14.90 and Rs 2.25, a 562% range, after opening nearly four times its earlier close.
A number of low-priced contracts that usually trade around Rs 1–Rs 4 now show lifetime highs in the hundreds, screenshots of which are circulating widely among dealers.
HFT players say the volatility itself isn’t the primary concern—rather, it’s the regulatory uncertainty following SEBI’s interim order in the Jane Street–BSE options case. Compliance teams across algorithmic firms now flag BSE weekly expiries as high-risk, prompting desks to cut exposure. Traders note that sharp moves typically cluster around Wednesdays and Thursdays, often preceded by a sudden vacuum in quotes across strikes. Allegations of spoofing and coordinated activity continue to swirl online, though no irregularities have been officially confirmed. With fewer HFTs providing depth, order books have thinned, making markets more vulnerable. Even small hedging flows from institutions can trigger cascading prints down to five paise.
Market participants are urging: 1. Clear communication from SEBI and BSE on how extreme swings are monitored, 2. Public post-trade data on liquidity, cancellations and order concentration and 3. Unified surveillance across exchanges.
Stronger penalties for proven misconduct, along with safeguards for genuine liquidity providers. For now, BSE continues to post record option volumes—while some of the fastest traders are choosing to stand back and watch.
