Daijiworld Media Network – Mumbai

Mumbai, Feb 10: The Securities and Exchange Board of India (SEBI) has directed the country’s two newest exchanges – the National Commodity and Derivatives Exchange (NCDEX) and the Metropolitan Stock Exchange (MSE) – to halt plans to offer equity derivatives trading until they strengthen their equity cash market businesses, regulatory sources said.

Both NCDEX, traditionally focused on agricultural commodities, and MSE, primarily a currency derivatives platform with thin equity volumes, had sought approval late last year to expand into equity cash and derivative products. SEBI’s move reflects caution over India’s booming equity derivatives market, where outstanding premiums are now roughly twice the size of the cash market, compared with 2–3% in major global economies.

According to sources, SEBI requires new exchanges to maintain a minimum six-month gap between launching cash equity trading and rolling out equity derivatives. “Exchanges won’t be granted permission to launch derivatives until there is a liquid underlying cash market,” one source said. Another added, “Sufficient cash market participation, liquidity, and price discovery must be demonstrated before derivatives products are allowed.”

India’s NSE continues to dominate the derivatives segment, accounting for more than 70% of index options contracts traded globally. The government recently raised transaction taxes in an attempt to moderate derivative trading volumes, as studies indicate that 90% of retail investors incur losses in this segment.

NCDEX and MSE raised significant capital in 2025 to fund their expansion into equities and upgrade technology. NCDEX secured Rs 770 crore from 61 investors, including global trading firms Citadel Securities and Tower Research, while MSE raised Rs 1,200 crore from private equity firms and major Indian brokerages, including Groww and a unit of Zerodha.

SEBI has also asked both exchanges to ensure robust technology platforms before entering the equity segment. “Until exchanges demonstrate robust technology, there is no question of them starting equity trading, let alone derivatives,” a source noted.

SEBI, NCDEX, and MSE did not provide comments on the directive.

This regulatory move reinforces the emphasis on ensuring stable and liquid equity cash markets before allowing new players to expand into derivatives trading.