By Jayshree P Upadhyay
MUMBAI, Feb 10 (Reuters) – India’s market regulator has stopped the country’s two newest exchanges from offering trading in equity derivatives, asking them to build 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) 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 thin equity volumes. Both have looked to diversify their businesses.
SEBI’s decision underscores continued caution over India’s soaring equity derivatives market, where premiums are twice the size of the cash market, compared with 2% to 3% in major global economies.
News of the regulator asking the bourses to pause plans for derivatives products has not been previously reported.
NSE IS MOST ACTIVE DERIVATIVES EXCHANGE
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 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 SAYS IT’S ‘UNDER NO RESTRICTIONS’
MSE initially just referred Reuters to a statement last month that it was “in process of appointing market makers to strengthen liquidity and market depth in its equity segment.”
After this story was published, exchange said in a new emailed statement that it is a SEBI-recognized stock exchange and was “under no restriction from offering of any approved products including equity derivatives.”
Equity trading in India is dominated by the NSE and its older peer BSE.
Both NCDEX and MSE raised capital in 2025 to fund expansion into equities and upgrade technology.
NCDEX raised 7.7 billion rupees ($85 million) from 61 investors, including Citadel Securities and U.S.-based high-frequency-trading firm Tower Research.
MSE raised 12 billion rupees from private equity firms including Peak XV Venture Partners Investments VII and Indian brokerages including Groww and a unit of Zerodha.
SEBI has also asked the two exchanges to upgrade their technology before entering the equity segment, the first source said.
(Reporting by Jayshree P Upadhyay; Editing by Thomas Derpinghaus and Bernadette Baum)
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