India’s market regulator has stalled plans by the country’s two newest exchanges to enter the equity derivatives segment, asking them to first develop their cash equity businesses, two regulatory sources with direct knowledge of the matter told Reuters. The move is aimed at National Commodity and Derivatives Exchange (NCDEX) and the Metropolitan Stock Exchange (MSE), both of which had sought approval from the Securities and Exchange Board of India (SEBI) late last year to launch equity cash and derivatives products, according to exchange disclosures.

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NCDEX primarily operates in agricultural commodity trading, while MSE’s activity is concentrated in currency derivatives, with relatively thin volumes in equities. Both exchanges have been looking to diversify revenue streams and expand into equity markets, the sources said.

SEBI Signals Caution On Expanding Derivatives Trading

SEBI’s decision reflects continued regulatory caution over India’s rapidly expanding equity derivatives market. According to regulatory data cited by the sources, premiums traded in India’s derivatives market are about twice the size of the cash equity market, compared with around 2% to 3% in major global economies. The development has not been previously reported.

The regulator has communicated to the exchanges that permission to launch equity derivatives would not be granted until there is sufficient liquidity and participation in the underlying cash market, the sources said. SEBI wants a minimum gap of six months between the launch of cash equities and equity derivatives to ensure proper price discovery and market depth.

NSE Dominates Global Derivatives Volumes

Despite recent regulatory steps aimed at cooling derivatives activity, India remains a global hub for options trading. The National Stock Exchange accounts for more than 70% of all index options contracts traded worldwide, according to data from the World Federation of Exchanges.

Earlier this month, the government increased securities transaction taxes on derivatives to help moderate trading volumes. Regulatory studies have shown that nearly 90% of retail investors incur losses in derivatives trading, according to data cited by policymakers.

Capital Raising And Technology Upgrades

Both NCDEX and MSE raised fresh capital in 2025 to fund expansion into equities and technology upgrades. NCDEX raised ₹7.7 billion from 61 investors, including Citadel Securities and U.S.-based high-frequency trading firm Tower Research, according to exchange filings. MSE raised ₹12 billion from investors, including Peak XVVenture Partners Investments VII, Groww, and a unit of Zerodha.

SEBI has also asked both exchanges to strengthen their technology infrastructure before entering the equity segment, one of the sources said.

Exchanges Respond

SEBI and NCDEX did not respond to requests for comment from Reuters. MSE initially referred Reuters to an earlier statement saying it was in the process of appointing market makers to improve liquidity in its equity segment. After publication, MSE said in an emailed statement that it is a SEBI-recognised stock exchange and is “under no restriction from offering of any approved products, including equity derivatives.”

Equity trading in India continues to be dominated by the NSE and the BSE, which together account for the vast majority of cash and derivatives market activity, according to exchange data.