Market regulator SEBI has stopped the country's two newest exchanges from offering trading in equity derivatives and has asked them to build up their
share-trading businesses first, Reuters quoted two regulatory sources with direct knowledge of the matter. Late last year, NCDEX and the Metropolitan Stock Exchange (MSE) separately approached SEBI for approval to launch and develop equity cash and derivative products, disclosures showed, as both exchanges look to diversify beyond their core segments. SEBI's decision underscores continued caution over India's soaring equity derivatives market, where premiums are now roughly twice the size of the cash market, compared with 2-3 per cent in major global economies, Reuters reported. Despite steps taken to cool derivative trading, India's NSE remains the most active derivatives exchange, accounting for more than 70 per cent of index options contracts traded worldwide, Reuters quoted data from World Federation of Exchanges. Earlier this month, the government raised transaction taxes to help cool derivative trading volumes. Studies have shown that 90 per cent of retail investors incur losses. "SEBI wants there to be a gap of at least six months between the launch of cash equities and equity derivatives. Exchanges won't be granted permission to launch derivatives until SEBI is satisfied that there is an underlying liquid cash market," Reuters quoted one of the source. The regulator does not want new players to further fuel derivatives trading without first establishing an underlying cash market, according to the source. "The exchanges will be required to demonstrate sufficient cash market participation, liquidity and price discovery before being permitted to launch derivatives," Reuters quoted another source. MSE did not answer questions about its equity derivatives plans but referred Reuters to a statement issued last month that it is "in process of appointing market makers to strengthen liquidity and market depth in its equity segment." Equity trading in India is dominated by the NSE and its older peer BSE. Both NCDEX and MSE raised capital in 2025 to fund their expansion into equities and upgrade technology, according to Reuters. NCDEX raised 7.7 billion rupees ($85 million) from 61 investors including some global trading giants: Citadel Securities and Tower Research, a US-based high-frequency-trading firm. MSE raised 12 billion rupees from private equity firms including Peak XV Venture Partners Investments VII and leading India brokerages including Groww and a unit of Zerodha, as per Reuters. SEBI has also asked the two exchanges to upgrade their technology before entering the equity segment. "Until exchanges demonstrate robust technology, there is no question of them starting equity trading, let alone derivatives," Reuters quoted one of the source. (With Agency Inputs)
