Proprietary trading firms are scaling back their participation in India's derivatives market, especially on the National Stock Exchange (NSE), which has seen its derivatives trading volume fall significantly. This exodus is largely attributed to tighter regulations and higher taxes implemented by Indian authorities, aiming to curb excessive speculative activity. The average daily notional turnover for futures and options on the NSE dropped 23% in July from June to 214 trillion rupees ($2.2 trillion), reaching its lowest point since February 2025. By August, the average daily notional turnover in index and stock derivatives further declined to 193.3 lakh crore rupees, an 18-month low.
Regulatory measures, which began in late 2024, include increased contract sizes, limits on index expiries to one per week per exchange, higher Securities Transaction Tax (STT), and enhanced collateral requirements. A new closing auction session introduced in early August also contributed to the market's adjustment period and negatively impacted options trading. These changes have reduced opportunities for quick-turnaround trades and made the market less attractive for high-frequency trading firms and proprietary desks.
While the overall derivatives market has cooled, individual investors' share in the equity derivatives notional turnover has paradoxically risen to 32.9% in August 2026, up from 29.9% a year prior. However, the number of traders participating in both cash and derivatives segments fell to 6.32 million from 8.88 million in 2024, indicating a shift away from combined trading strategies. The decline in derivatives activity has also prompted the NSE to lower its IPO ambitions, as investors are concerned about the future growth prospects of the exchange without its previously booming derivatives business.
