India’s market regulator 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,
two regulatory sources with direct knowledge of the matter said.
Late last year, the National Commodity and Derivatives
Exchange (NCDEX) and the Metropolitan Stock Exchange (MSE)
separately sought approval from the Securities and Exchange
Board of India (SEBI) to launch and develop equity cash and
derivative products, according to exchange disclosures.
NCDEX predominantly trades agricultural commodities, while
MSE mainly offers currency derivatives and has very thin equity
volumes. Both exchanges have been looking to diversify their
businesses.
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% to
3% in major global economies.
The regulator’s directive to the exchanges telling them
to pause plans for derivatives products has not been previously
reported.
Despite steps taken to cool derivative trading, India’s NSE
remains the most active derivatives exchange, accounting for
more than 70% of index options contracts traded worldwide,
according to 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% 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,” the
first source said. “Exchanges won’t be granted permission to
launch derivatives until SEBI is satisfied that there is an
underlying liquid cash market.”
The regulator does not want new players to further fuel
derivatives trading without first establishing an underlying
cash market, the source said.
“The exchanges will be required to demonstrate sufficient
cash market participation, liquidity and price discovery before
being permitted to launch derivatives,” the second source said.
The sources declined to be identified as they are not
authorised to speak to the media.
SEBI and NCDEX did not respond to requests for comment.
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.
NCDEX raised 7.7 billion rupees ($85 million) from 61
investors including some global trading giants: Citadel
Securities and Tower Research, a U.S.-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.
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,” the first source said.
Published on February 10, 2026